Indonesia Infrastructures & Sukuk Update IIFM Specialized Sessions on Islamic Finance at ISEF 7 November 2017, Surabaya Herwin Bustaman Head, Shariah Banking Maybank Indonesia Global Sukuk Update 1
No. of Sukuk Issuing Countries ( Corporate + Sovereign) Global Sukuk an Overview A rebound in 2016 after three consecutive declines after its peak in 2012 Global Sukuk Issuance USDbln Top Sukuk Market 2016 12% 52.74% 6.23% 11.25% Source: Thomson Reuters, MIFC estimates 29.79% Malaysia Gulf Coorporation Council Indonesia Turkey Others Source: Thomson Reuters, MIFC estimates Top Sukuk Markets 2016 Source: Thomson Reuters, MIFC estimates Source: Thomson Reuters, MIFC estimates 3 Global Sukuk an Overview New issuers are diversifying their funding source by tapping the Shariah investors 30 25 20 15 10 5 2016 and beyond: governments of Jordan, Ivory Coast, Togo, Kenya and Oman made their debut in the global Sukuk market. This phenomenon is expected to grow further as governments of Ecuador, Egypt, Kazakhstan, Mexico, Morocco, South Korea, Thailand, Philippines and Tunisia explore potential debut sovereign Sukuk issuances. 1 Malaysia 9 Bahrain Indonesia Kuwait Pakistan Qatar Saudi Arabia Singapore UAE Malaysia 15 Bangladesh Brunei Gambia Japan Turkey United States Bahrain Indonesia Kuwait Pakistan Qatar Saudi Arabia Singapore UAE Malaysia Hong Kong Kazakhstan Luxembourg Nigeria Oman Yemen Bangladesh Brunei Gambia Japan Turkey United States Bahrain Indonesia Kuwait Pakistan Qatar Saudi Arabia Singapore UAE Malaysia Togo China Ivory Coast Jordan Kenya Senegal South Africa United Kingdom Hong Kong Kazakhstan Luxembourg Nigeria Oman Yemen Bangladesh Brunei Gambia Japan Turkey United States Bahrain Indonesia Kuwait Pakistan Qatar Saudi Arabia Singapore UAE Malaysia 1990-2000 2000-2005 2006-2010 2011-2013 2014-2016 21 29 Year Source: Bloomberg 4 2
Sukuk: Avenue for Infrastructure Financing Key ingredients for Infrastructure Project Financing Long-term and stable cash flow Infrastructure projects with long-term concessions and stable cash flows features that are derived from clear asset sources give certainty for financing. This features also suits financing via Sukuk. Enhanced liquidity and wider investor base Sukuk issuances attracts liquidity from both Islamic and conventional investors in the global Sukuk markets Deepened available capital pool Infrastructure financing requires large amount of financing. Traditional financing under Islamic financial institutions are restricted by single customer limit. The availability of Sukuk as an alternative source of financing for infrastructure projects and source of capital. Longer debt maturities With longer debt maturities the repayment can be spread out for the Customer. Infrastructure projects would involve long construction period, thus with longer maturities it will provide ample time to build up the cashflow. Notable Sukuk Issuance for Infrastructure Project Financing in Asia Issuer Saudi Electricity Global Sukuk Company 3 Country Islamic Structure Issue Date Currency Amount Outstanding (million) Coupon (%) Tenure (Years) Saudi Arabia Ijarah 8-Apr-14 USD 2,500.0 4.00, 5.50 10.0, 30.0 Type of Infrastructure Project Power Plants & Electricity Transmission Network Syarikat Prasarana Negara Bhd Malaysia Ijarah 12-Mar-14 MYR 2,000.0 4.08, 4.67 5.0, 10.0 Light Rail Transit TNB Western Energy Bhd Malaysia Ijarah & Wakalah 30-Jan-14 MYR 3,655.0 5.06 5.80 10.5-20.0 Power Plant Perusahaan Listrik Negara PT Indonesia Ijarah 10-Dec-13 IDR 429,000.0 9.00, 9.60 5.0, 10.0 Electricity Transmission Network Sarawak Hidro Sdn Bhd Malaysia Ijarah 14-Oct-13 MYR 1,000.0 4.60 15.0 Hydroelectric Dam DEWA Sukuk 2013 Ltd United Arab Emirates Ijarah 5-Mar-13 USD 1,000.0 3.00 5.0 Power Plants & Water Desalination Plants Tanjung Bin Energy Issuer Bhd Malaysia Murabahah 16-Mar-12 MYR 3,290.0 4.65 6.20 5.0 20.0 Power Plants Projek Lebuhraya Usahasama Bhd Malaysia Musharakah 12-Jan-12 MYR 30,600.0 3.90 5.75 5.0 27.0 Expressways 5 Indonesia Infrastructure Projects Update 3
Indonesia continues to make progress Showing improvement on Global Competitiveness and Governance Indicators 7 Indonesia consistently improves its EDBR The Ease of Doing Business Rank (EDBR) improves further from 91 to 72 Source: World Bank 8 4
Indonesia is still trusted by large investors Indonesia continues to enjoy large investments relative to peers in the Region 9 Indonesia is committed with the Reform The Country also has a conducive environment 10 5
Infrastructure Financing Need 2015-2019 11 Infrastructure Projects Achievement in 2015 & 2016 12 6
Significant Progress on Infrastructure Projects 13 Efforts to Accelerate Infrastructure Provision The government has enacted reforms to accelerate infrastructure provision 14 7
Indonesia Sukuk Update Local Currency Bonds & Sukuk Market Still at a healthy proportion (of total outstanding securities as compared) to GDP (%) Size of Indonesia Local Bonds and Sukuk Market as % of GDP (2000 2016) Date Government (in %GDP) Corporate (in %GDP) Total (in %GDP) Dec 2000 35.39 1.36 36.75 Dec 2001 29.83 1.14 30.97 Dec 2002 26.18 1.18 27.36 Dec 2003 24.71 2.25 26.96 Dec 2004 21.92 2.56 24.48 Dec 2005 17.1 2.08 19.18 Dec 2006 18.82 1.84 20.66 Dec 2007 18.37 2 20.37 Dec 2008 13.03 1.35 14.38 Dec 2009 14 1.47 15.47 Dec 2010 12.3 1.67 13.97 Dec 2011 10.81 1.88 12.69 Dec 2012 10.48 2.18 12.66 Dec 2013 11.43 2.29 13.72 Dec 2014 12.37 2.11 14.48 Dec 2015 13 2.16 15.16 Mar 2016 14.03 2.16 16.19 Source: Asian Bonds Online, data as at March 2016 16 8
Project Financing Government Sukuk 2013 IDR800 Billion 2014 IDR1.57 Trillion 2015 IDR7.13 Trillion 2016 IDR13.67 Trillion 2017 IDR16.76 Trillion Ministry of Transportation Ministry of Transportation Ministry of Transportation Ministry of Transportation Ministry of Transportation (IDR800 billion): Double Track Railways (Cirebon Kroya) (IDR1.371 trillion): Double Track Railways (Cirebon Kroya) Double Double Track Railways (Manggarai Jatinegara) Double Track Railways (Jatinegara Bekasi) Ministry of Religious Affairs (IDR200 billion): Revitalization and Development of Hajj Dormitory (Medan, Padang, Jakarta) (IDR2.92 trillion): Elevated Track Railways (Medan Kualanamu) Double Track Railways (Martapura Baturaja & Cirebon Kroya) Railways facilities (Manggarai Jatinegara & Jatinegara Bekasi) Ministry of Public Works & Housing (IDR3.51 trillion): Roads and bridges Development (Sumatera, Jawa, NTB, Kalimantan, Sulawesi, Maluku & Papua). Ministry of Religious Affairs (IDR675 billion): Revitalization and Development of Hajj Dormitory (8 locations) Development/rehabilitation of Religious Affairs Office (19 KUA) Development of the State Islamic Higher Education building and facilities (7 PTKIN) (IDR4.983 trillion): Elevated & Double Track Railways (Jabodetabek, Central Java, East Java & Sumatera). Ministry of Public Works & Housing (IDR7.226 trillion): Roads, flyover/underpass/ tunnel & bridges development (Sumatera, Java, NTB, Kalimantan, Sulawesi, Maluku & Papua). Ministry of Religious Affairs (IDR1.468 trillion): Revitalization and Development of Hajj Dormitory (7 locations) Development/rehabilitation of Religious Affairs Office (181 KUA) Development of the State Islamic Higher Education building and facilities (25 PTKIN) (IDR7.543 trillion): Elevated & Double Track Railways (Jabodetabek, Central Java, East Java, Sumatera & Sulawesi). Ministry of Public Works & Housing (IDR7.429 trillion): Roads, flyover/underpass/ tunnel & bridges development (Sumatera, Java, NTB, Kalimantan, Sulawesi, Maluku & Papua) Flood and lava control, management of urban main drainage and coastline security, management of dams, embung, and other water containers buildings, raw water supply and management Ministry of Religious Affairs (IDR1.792 trillion): Revitalization and Development of Hajj Dormitory (11 locations) Development/rehabilitation of Religious Affairs Office (256 KUA) Development of the State Islamic Higher Education building and facilities (32 PTKIN) Source: Ministry of Finance (Indonesia) 17 Outstanding Value by Instrument Type Shariah portion: 12.9% (vs. among Corporate Issuers: 3.6%) Issuer Type Type of Instrument Conventional or Shariah Outstanding Amount (IDR Billion) In Respective Issuer Type % of Total Outstanding Per Issuer Type Per Instrument SUN Government Debt Securities 1,486,530.25 58.5% 49.4% SBSN Government Shariah Securities 240,593.50 9.5% 8.0% Government SPN Treasury Bills 41,040.00 1.6% 84.5% 1.4% SPN-S Islamic Treasury Bills 7,700.00 0.3% 0.3% SUN FCY Treasury Bonds in a FCY 639,186.52 25.1% 21.2% Sukuk Negara FCY Government Shariah Securities in FCY 127,642.00 5.0% 4.2% Bank Indonesia SBI Bank Indonesia Certificates 105,377.00 69.2% 5.1% 3.5% SDBI Certificate Deposit Bank Indonesia 46,985.00 30.8% 1.6% Bonds Corporate Bonds (Maturity > 1year) 223,210.86 71.0% 7.4% Corporate Notes Notes (Maturity < 1year) 77,090.00 24.5% 10.5% 2.6% ABS Asset-Backed Securities 2,808.42 0.9% 0.1% Sukuk Corporate Shariah Bonds 11,428.00 3.6% 0.4% Conventional 2,622,228.05 87.1% Syariah 387,363.50 12.9% Notes: Data as of end of December 2016; percentages valid for each issuer type. the Sources: - For government debt securities, data on tradable securities are from http://www.djppr.kemenkeu.go.id\; - for corporate bonds, data are sourced from CTP-PLTE; - for Bank Indonesia issuances, Bank Indonesia data are used. 18 9
Challenges & Recommendations No Key Opportunity Areas Challenges Intervention Required 1 Talent Development Industry is suffering from lack of good talents especially in capital market to help drive the industry Develop local talent by encouraging conventional investment bankers to join the industry Scholarship program, not only for the regulator, but also for scholars Expatriate-friendly policies 2 Encouraging Issuers to issue Sukuk Issuers need extra handholding when it comes to issuing Sukuk Detail manual for issuing Sukuk with standardised Shariah structures Other than a cap in OJK listing fee, ISE listing fee should also be capped for Sukuk issuance 3 Encouraging Investors to invest in Sukuk Investors should also be encouraged to invest in Sukuk Funds related to Islamic religious activities should be invested in Shariah compliant investments Pension funds shall also be invested in Shariah compliant investments (the proportion should at least be inline with the market share of Shariah finance) State budget (APBN) shall also be channelled through Shariah banks to finance government sponsored infrastructure projects to help reduce COF Supporting industries genuinely require Sukuk instruments (i.e. Takaful, Pension Funds, & Assets Management) should be incentivise to speed up the development Ideally, income tax on Shariah funds should be lower than conventional given the floating nature of the return 4 Government is spending USD416bio from 2014-2019 for infrastructures Shariah banks are still facing some structural issues i.e. High COF Mudharabah Muqayaddah product can be a unique product for Shariah banks to facilitate depositors to provide financing directly to government infrastructure projects Lowering RWA calculation (by 10pts) if Shariah banks are financing SOEs 5 Complete product range for Financing & Hedging Instruments Limited products availability especially when it comes to revolving financing and hedging instrument products Commodity Murabaha structure, as the basis for revolving financing & hedging instruments, should be accepted More flexible liquidity instruments 19 Thank You 10