The Indonesian loan market was undeniably dismal in 2012, when borrowers raised only $10.5bn from dollar, euro and yen loans, a fall of more than 30% from the previous year, according to Dealogic data. However, this year’s first quarter has given bankers more hope. The volumes are certainly not record-breaking, but bankers say they have a lot of deals in the pipeline.
They have even higher hopes for the rest of the year. This is partly because there is a compelling argument for borrowers to get their funding out of the way before next year’s presidential election. Voters take to the polls in the middle of 2014 to pick a replacement for incumbent President Susilo Bambang Yudhoyono, and market jitters and an uncertain environment are certainly expected.
But the election is surely not the only cause for worry. Market conditions now are as good as they are likely to get, in a country that already appears to be heading towards tougher times. Indonesia’s gross domestic product fell to 6.11% in January, from 6.17% the month before. GDP growth last year was also slower than in 2011, and the central bank has predicted a further fall this year.
There will, of course, be repercussions from the election, but not all of them will be negative. In Indonesia, there tends to be a consumption boost in the fourth quarter of the year preceding any elections, and the first quarter of the year in which they take place, according to Standard Chartered analysts. But most borrowers will be likely to hold their cards close to their chests in the run up to the polls and, depending on who wins the election, even after.
Borrowers should realise that, elections or not, they now have ideal market conditions. Last year’s fall in loan volumes has left many banks with a lot of liquidity. They are hungry to diversify their exposure away from Chinese companies, and some big deals from Indonesian borrowers fit the bill perfectly.
It is clearly time for borrowers to get on board and take advantage of the favourable environment. They are unlikely to come across the same cheap pricing or the same hungry lenders in the years ahead, whatever result the elections bring.