The Role of Bank Mandiri in Infrastructure Financing Ferry M.Robbani Senior Vice President PT Bank Mandiri (Persero) Tbk
Indonesia s Development Plan THE GOVERNMENT HAS TARGETED SOME HIGH INDICATORS IN THE RPJMN 2015-2019 Development Targets for RPJMN 2015-2019 Increase competitiveness Improving human quality, in including through mental development Harness and restore our potential in the maritime and marine sector Increase economic growth with strong and qualified fundamental basis Reduce the inequality between regions Restoring environmental damages Advancing the society of life Quantitative Targets for 2019 8% Economic growth Rp71.97 mn GDP per capita 3.5% Inflation 5%-6% Poverty rate 16% Tax ratio 4%-5% Open unemployment rate Economic growth increase from 5.1% in 2014 to 8% by 2019 Increase GPD per capita from Rp43.32 million in 2014 to Rp71.97 million by 2019 Decrease inflation rate to 3.5% by 2019 from 7.3% in 2014 Poverty rate decrease to 5-6% by 2019 from 11% in 2014 Increase tax ratio to 16% by 2019 from 11% in 2014 Decrease open unemployment rate to 4-5% from 6% in 2014 2
Indonesia s Development Plan THE RPJMN 2015-2019 INCLUDES EXTENSIVE INFRASTRUCTURE DEVELOPMENT Infrastructure Development to improve connectivity and reduce logistic cost 3
Electricity Road Port Oil and Gas Water Resources Clean Water and Sanitation Housing Information & Technology Railway Airport Urban Transportation Land Transportation 591 507 451 403 328 280 226 144 86 47 733 1000 Progress of infrastructure development and financing FINANCIAL SUPPORT REMAINS TO BE A BIGGEST PROBLEM The progress of infrastructure projects (as of Dec 2017 in IDR Trillion) Infrastructure total spending plan by type (2015-2019) (in Tn) Regulatio n Inpres 3/2016 (225 PSN + 1 Program) & Perpres No.58/20 17 (245 PSN + 2 program) Sub-infra Total PSN Current Progress (IDR Trillion) per Dec 2017 (Cummulative) Completed Construction Bidding Process Preparation Cancelled Road 706,4 14,2 303,7 45,2 343,3 0 Railway 624,1 186,6 437,5 Airport 30,5 11,9 17,8 0,8 Seaport 132,6 12,0 2,3 118,2 0,1 Technology (ICT) 10,2 6,1 4,1 Dam 63,7 6,2 25,4 32,2 Housing** Water & Sanitation 86,1 4,5 1,1 80,5 Sea Wall 2.400,0 2,4 Energy 1.256,7 1,2 321,2 644,4 289,9 0,04 Agri & Fishery 0,2 0,1 0,1 Irrigation 3,7 3,7 Economic Zone 388,0 301,6 86,4 Smelter 90,4 79,9 10,5 National Border 0,9 0,9 Electricity* 1.035,9 28,8 453,0 489,7 64,4 Aircraft Industry* 20,1 20,1 Total 4.452,1 75,4 1.708,3 1.180,4 1.487,0 1,0 The progress of electricity projects 35 GW as of November 2017 (in Mega Watt) The obstacles of infrastructure development 3.08% 6.16% 7.84% Planning 8% 23% Permit Issue Procurement 18% Financing Issue 47.34% 35.57% PPA (Power Purchase Agreement) Construction 11% Planning and Preparation Issue Land Acquisition issue Commercial Operation 40% Construction Issue Sources: KPPIP and Bappenas 4
Progress of infrastructure development and financing An Update of infrastructure projects : Most of the projects are under construction Majority of investment realization for National Strategic Projects is in Java National Strategic Projects By Island and Infrastructure Type as of Dec 2017 (Investment Value: IDR Billion) Source: KPPIP, data calculated by OCE 5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Infrastructure financing SUPPORT OF THE GOVERNMENT BUDGET IS CONSTRAINED BY 3% BUDGET DEFICIT RULE 500 400 300 200 100 0 Infrastructure Spending Government spending on infrastructure GOVERNMENT SPENDING ON INFRASTRUTURE Infrastructure (Rp tn) Infrastructure to GDP (%)-RHS 2011 2012 2013 2014 2015 2016 2017F 2018F 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Ownership of Government Bond 31-Dec-16 29-Dec-17 Net buy/(sell) 2017 2016 2015 Bank 399.5 491.6 92.10 26.9 63.1 Bank Indonesia 157.9 141.8-16.1 7.8 18.7 Mutual Fund 85.7 104.0 18.3 24.1 15.8 Insurance 238.2 150.8-87.4 66.6 21 Foreign 665.8 836.2 170.35 107.3 97.2 Pension Fund 87.3 198.1 110.8 37.4 6.5 Retail 57.8 59.8 2 15.2 12.1 Others 104.8 117.5 12.7 26.1 17.4 Total 1773.3 2099.8 326.5 311.4 251.9 Sources: Nota Keuangan and our estimation. Rp tn 500 4.0 400 300 200 1.7 100 0 1.2 Government bond is becoming the main source of budget deficit 2.4 1.3 Other/Non Debt-Nett External Loan - Nett Goc't Securites - Nett 1.7 1.1 0.5 0.9 1.3 0.1 1.6 0.7 1.3 1.8 2.3 2.3 % of GDP 4.5 4.0 3.5 3.0 2.5 2.5 2.4 2.6 2.0 1.5 1.0 0.5-100 0.0 6
Infrastructure financing from bank loans Sources: OJK, OCE s calculation 7
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017 Rp. Tn % Rp. Tn % Rp. Tn % Infrastructure financing from bank loans BANK LOAN TO INFRA PROJECTS IS RAPIDLY INCREASING BUT STILL BELOW THE NEEDS Typology of Infrastructure Projects Loan Provided by Banking to Infrastructure Projects 65 Sources: Perpres 13/2010, LPI, dan GCI 61 58 321 54 65 255 67 203 60 162 43 47 41 57 76 93 101 118 38 42 51 59 71 83 94 101 117 136 158 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F Logistics Utilities Oil & gas Bank loan to logistic sector Bank loan to utilities sector Bank loan to oil and gas sector 140 120 100 80 60 40 20 0 2.8 1.1 5 4 3 2 1 0 200 180 160 140 120 100 80 60 40 20 0 1.2 1.5 4 3 2 1 0 80 70 60 50 40 30 20 10 0 10.5 5.3 12 10 8 6 4 2 0 Kredit (Rp. Tn)-LHS NPL (%)-RHS Kol 2 (%)-RHS Sources: OJK, OCE s calculation Kredit (Rp. Tn)-LHS NPL (%)-RHS Kol 2 (%)-RHS Kredit (Rp. Tn)-LHS NPL (%)-RHS Kol 2 (%)-RHS Offsite Discussion Material Securitization 8
Bank Mandiri s contribution to infrastructure financing INFRASTRUCTURE LOAN FROM BANK MANDIRI GREW 14.3 % IN 2017 Source: Bank Mandiri 9
Bank Mandiri s contribution to infrastructure financing BANK MANDIRI GIVES SIGNIFICANT CONTRIBUTION TO NATIONAL PRIORITY PROJECTS Toll road Semarang Solo (73 km) Project cost IDR 7.3 tn Tenor: 2009-2026 (15 years) Kuala Tanjung Port phase I Project Cost : IDR 3 tn Tenor: 2016-2026 (10 years) Refinancing 43 port in middle Indonesia Project Cost : IDR 14.8 tn Tenor: 2016-2024 (8 years) Solar Power Plant Kupang Len Industry Project cost IDR 149 bn Tenor: s.d. 2022 Toll road Batang Semarang (75 km) Project cost IDR 11 tn Tenor: 2017-2019 (2 years) South Natuna Blok-B Project cost : USD 241 mn Tenor: 2016-2022 (6 years) Airport Train Soekarno Hatta Project cost IDR1.7 tn Tenor: 2015-2029 (14 years) 438 Train Carriage Revitalization Project cost: IDR2.2tn Tenor: 2017-2018 (1 year) Capex 2016-2017 Angkasa Pura I Project cost : IDR10.5 tn Tenor: s.d. 2031 Steam Powerplant Lampung 2x300MW Project cost IDR 253 bn Source: Bank Mandiri 10
Bank Mandiri s contribution to infrastructure financing MAIN CRITERIA & PRIORITIES FOR INFRASTRUCTURE FINANCING Main Criteria Project Feasibility: demands, traffics, break even point, NPV, IRR Land Acquisition: Percentage of land acquired (minimum 75 %) Main contractor for the project: reputable contractor Included in National Priority Projects Project Sponsor: reputation and financial capacity Guarantee (if any): PT. PII (Penjaminan Infrastruktur Indonesia) No Priorities on Certain Sector as long as the Projects passed criteria above Road & Toll Road Transportation: Ports, Airports, & Railways Oil and gas and renewable energy Electricity Information technology Housing & City Infrastructure Construction Other: water, waste, tourism and health 11
Bank Mandiri s contribution to infrastructure financing RISK MITIGATION In-depth review on projects feasibility & investor capacity All projects should pass the criteria: project feasibility, land acquisition, contractors, National priority projects, and Investee. Guarantee such as from PT. PII is preferable. Loan structuring Loan will be structured to match project financing needs. In order to reduce loan duration, loan can be repaid before matured. For example, after a Toll Road is operated and generate cash flow, project owner can issue bonds (bonds financing) to repay the loan (bank financing). Syndication Benefits of syndication: Risk sharing Portfolio sharing More parties involved in analyzing the projects Support from Investee Benefits of syndication: Commitment to complete the project Self-financing during construction and operational phase. Compliance with Banks and related parties requirements in projects financing & completion. 12
DEBTOR BANKS Bank Mandiri s contribution to infrastructure financing ISSUES & SUPPORT NEEDED BMPK ISSUES Limited BMPK (Legal Lending Limit); BMPK especially for BUMN Karya is almost full Current BMPK availability cannot support funding needs for RPJMN 2015-2019 SUPPORT NEEDED Alternative infrastructure financing apart from Bank Financing Liquidity Missmatch Funding Short term source of fund (3 rd party funding < 1 yr) is used to finance long term loan (> 10 yr) Loan to Funding Ratio (LFR) calculation have not included wholasale funding Encourage BPJS and Dana Haji (long term funding) to support infrastructre financing Wholesale funding is included in LFR calculation Dana Talangan Tanah (DTT) DTT repayment is delayed High leveraging could cause cash flow problem DTT repayment should be paid on schedule Project Turn Key Project is paid on completion (2-3 years for Toll Road) High leveraging could cause cash flow problem Reliable source of financing 13
The Next Step for Indonesia s Infrastructure Financing ALTERNATIVE FINANCING ROADMAP FOR INDONESIA'S INFRASTRUCTURE Alternative methods of financing has emerged to support government's development plan via infrastructure funding and provide the solution for corporations to fulfill their funding requirements and to expand their businesses. Debut Issuances in 2017 : Our Vision 1. Future Revenue Backed Securities - Domestic KIK-EBA 2. Project Bonds 3. Global IDR Bonds Indonesia Regional Global THE PAST Before 2017 THE BREAKTHROUGH 2017 THE FUTURE 2018 onwards Domestic Securitization Cross-Border Securitization Domestic Project Bonds Global Project Bonds Domestic IDR Bonds Global IDR Bonds Global IDR Bonds Global Equity Offering Global Equity Offering Global Equity Offering/ Direct Investment 14
Alternatives for infrastructure financing SOME FINANCING SCHEMES PROPOSED IN INDONESIA INFRASTRUCTURE PROJECTS Project bond Asset securitization Issued to finance specific projects by SPV (special purpose vehicle) company Bear the credit risks on the issuing entity (i.e., depending on one specific project) More viable for sufficiently large project (more than USD100 mn) Key question: is it guaranteed by the government? Government guarantee is key to cover some potential risks Payment of securities is based on the cash flow coming from a third party, which is the project revenue. Uncertainty in repayment because it is fully based on the future cash flow of the project. It is a new investment product in Indonesia; investors are still not familiar. Securitization asset market is not yet developed in Indonesia, so the asset is illiquid. Project financing Fully supported by the government as a guarantor of infrastructure projects. High risks and offer a low return of investment. Bank is reluctant to participate in infrastructure projects using project financing scheme. Multinational Development Bank International best practices should be applied in the projects, such as in environment, social, and good governance best practices. 15
Achievements in Alternative Financing CASE STUDY: ALTERNATIVE FINANCING STRUCTURES OF PT JASA MARGA (PERSERO) TBK Project Bonds (Brownfield) 4 toll road sections will issue project bonds with total issuance of IDR6 tn with tenor up to 15 years. Bank Loan To fulfill funding requirement from debt instrument Jasa Marga will borrow IDR35 tn from bank 35.0 Investment Capital Requirement 2016-2020 (IDR tn) 52 Equity 48 Debt Bonds (Domestic & Global) IDR7 tn required with tenor between 3 5 years (clean basis) 6.0 7.0 2016-2020 IDR100 tn 25.0 Jasa Marga Portion Jasa Marga will provide internal source of funding Securitization Potential Equity Funding Securitizing 5 toll road sections future revenue: Jagorawi (2017) Cawang - Tomang Cengkareng JORR W2S, E1-E3 Purbaleunyi Jakarta Tangerang 18.4 4.5 4.1 Sub-holding Transjava Minority equity opportunity in Trans Java sub-holding Investment participation in 3 toll road sections: Bali Mandara Toll Road Medan-Kualanamu-Tebing Tinggi Toll Road JORR W1 Toll Road At least one transaction completed In-progress 16
Achievements in Alternative Financing 2017 MILESTONES FOR INNOVATIVE INFRASTRUCTURE FINANCING Securitization Project Bonds Global IDR Bonds IDR 1.85 tn issue IDR 5.1 tn orderbook 2.8x oversubscription idaaa rating above Jasa Marga Consolidated (idaa) IDR 1.5 tn issue idaaa rating above Jasa Marga Consolidated (idaa) IDR 4 tn issue IDR 15 tn orderbook 3.8x oversubscription >64 accounts 37.5 bps tightening from initial price guidance Investment Structure Kontrak Investasi Kolektif Efek Beragun Aset (KIK EBA) Investment Structure Project Bonds Investment Structure Global IDR Bonds Underlying Financial Asset Future Revenue of Jagorawi Toll Road Size Rp1.5 tn Format 144A / Reg S Size Tenor Rp1.85 tn 5 years Return 8.4% Tenor/Coupon Series A: 3 years / 7.45% Series B: 5 years / 7.75% Series C: 7 years / 8.30% Series D: 10 years / 8.70% Series E: 12 years / 8.85% Size Rp4 tn Tenor 3 years Coupon 7.5% Rating idaaa Rating idaaa Rating Baa3 (Moody s) / BB+ (S&P) 17
Achievements in Alternative Financing JASAMARGA SECURITIZES FUTURE REVENUE OF JAGORAWI TOLL ROAD Jasamarga has lot of potential section to be securitized. A perfect example will be Jagorawi section, that offer stable growth and traffic for years. Jagorawi section potentially generate revenue of more than Rp1 trillion for the next three years. Jagorawi Section Overview 429 Rev Revenue (IDR billion) 607 620 548 508 697 Potential Risks in Investing on KIK EBA (Kontrak Investasi Kolektif - Efek Beragun Aset ) Kas Pendapatan Tol Investment Risks 2011 2012 2013 2014 2015 2016 Operational Risk Legal Risk Traffic (thousands) Liquidity Risk Section Jagorawi Shareholder Jasa Marga (100%) 170 Traffic 190 200 201 204 208 Concentration risk Market risk Road length 59 km Years of operation 1978 18 Concession period 2005 2044 Revenue 2016 Increase in toll fee rate IDR 693 billion Odd years 2011 2012 2013 2014 2015 2016 18
Achievements in Alternative Financing JASAMARGA ISSUED KOMODO BOND IN A BID TO FIND NEW SOURCES OF FUNDING Benefits of global IDR bond issuance: Global Bond Overview 1 2 3 4 Reduce Foreign Currency Exposure Investor Diversification Inward Remittance of US Dollars Broad Market Access Coupon Payments and Principal Repayment Coupon and principal paid to investors will be based on the relevant IDR principal amount but will be paid to investors in USD, using the applicable exchange rate Applicable Exchange Rate will be determined on a rate calculation date which is typically the [third] business day preceding each coupon or principal repayment date Reference rate to be agreed mutually between investors and issuer. Payment at Issuance The payment to be settled in USD currency with optional conversion to IDR Secondary Trading Mechanics Similar to any USD global bond, clearing will be performed through DTC or Euroclear / Clearstream, with each party also agreeing on an appropriate exchange rate to effect trades 19 19