Dollar liquidity has been facing a squeeze in Indonesia and is set to tighten next year, pushing banks as well as consumer demand-driven companies into the offshore dollar bond market for the first time, according to commentators.
The volume of syndicated dollar loans in Indonesia rose to US$15.2 billion last year, from US$7.99 billion in 2010, but has fallen back down to US$7.74 billion this year-to-date, according to Dealogic data. Partly as a result of this, US dollar-denominated DCM volume has almost doubled from US$6.36 billion in full-year 2011, to US$11.25 billion year-to-date in 2012.
However, this figure comprises only 13 deals throughout the year and a chunk of the total comes from Pertamina’s US$2.5 billion bond deal in May. But as dollar loan volumes continue to wane, many new credits, as well as names that have stayed away from the market, are likely to be pushed into issuing bonds in 2013, according to analysts.
“We are in discussion with a number of the corporate issuers. Many of the independent power producers in particular haven’t come to the market for the past two years because they could get decent loans in dollars from banks,” said one head of Asia Pacific DCM syndicate.
Banks in Indonesia have been receiving large volumes of short dated deposits and lending fairly aggressively in the five to seven-year sector to many companies that would otherwise have come to the bond markets, he said.
“Some of these are coming due but because banks have taken the dollar deposits and lent them quite long, they are still short dollars. So lots of the banks will be looking to access dollar markets to cover some of that liquidity.”
Bank Rakyat Indonesia (BRI) is leading the charge. On November 21, the lender announced plans to sell US$500 million worth of global bonds in the first half of next year. Sofyan Basir, the bank’s CEO told local paper the Jakarta Globe that the proceeds will go towards meeting its lending growth target.
At the same time, many Indonesian banks will be unable to refinance some of the loans coming due next year. Part of the reason for this is that for the past two years, Asian depositors have been avoiding developed market banks, particularly in Europe, but this is no longer the case, according to the syndicate head.
“As liquidity becomes more competitive banks will have to raise it elsewhere because their financing costs will come up so local corporates will likely come to the offshore bond markets to raise liquidity. This will be more pronounced in the higher quality sectors, the power sector,” said the head of Asia DCM syndicate.
Another reason for decreasing volumes of dollar loans is the push from Bank Indonesia (BI), which is seeking to increase dollar liquidity in the system, according to Destry Damayanti, chief economist at Bank Mandiri.
“There is advice from the central bank to control the dollar loans in the onshore market because BI is very prudent and very cognisant that the volume of dollar outstanding loans in the past two years has been quite significant,” she said to Asiamoney PLUS.
The central bank is very aware of the squeeze in dollar liquidity. BI has tried to improve the supply of US dollars by imposing regulations requiring exporters to bring their profits back to the country, according to a Jakarta-based banking analyst.
“I’m not sure how successful that has been, so there’s an expected regulation at the end of the month addressing this, allowing companies to bring back local currency,” he said. This will likely have a further negative impact on the volume of dollars in the banking system.
Furthermore, onshore dollar loans are much cheaper than rupiah loans, according to Damayanti. This means that companies who cannot refinance with dollar loans will be incentivised to issue an offshore dollar bond rather than recapitalise with a local currency loan. Yields on onshore dollar loans and offshore dollar bonds are usually fairly similar at between 4% to 5% for investment grade bonds, she added.
“Next year we may see a lot of corporates looking to tap offshore bonds and global bonds. Some banks will and maybe some oil and gas companies such as Star Energy, or construction companies. We believe that the construction sector will perform better in 2013 so they will need more capital to cover their operation costs. Also some consumer goods companies because they also have performed very well,” she said.