Corporate financing shifts to debt papers

JAKARTA. The financing schemes of Indonesian companies have begun to shift from traditional bank loans to capital markets as indicated by the surge in issuance of debt papers in recent months, global financial firm JP Morgan says.

Gregory L. Guyett, CEO of JP Morgan’s global corporate bank, said on Tuesday the trend was also seen elsewhere in the world, given tight liquidity in the world’s major banks in the debt-stricken eurozone.

So far this year, Asian companies have raised US$14 billion from the debt market, compared with $6 billion in the same period last year, he added.

“Absolute interest rates continue to be at very low points because of the liquidity that central banks are putting into the market. It’s keeping rates down and it’s keeping the yield curve very flat, so you can borrow long-term funds in very low interest rates,” Guyett told a limited media briefing during his visit to Indonesia.

“Secondly, you have a shift from bank markets to capital markets. It’s too early to tell whether that’s a secular, permanent or cyclical change, but it’s happening because banks generally are less willing to lend to European banks, shrinking their balance sheets dealing with the European crisis,” he added.

Many Indonesian companies have announced plans to issue bonds this year, including top consumer goods firm PT Indofood Sukses Makmur Tbk (INDF) to raise Rp 2 trillion, PT Berau Coal Energy Tbk (BRAU) and PT Bank Negara Indonesia Tbk (BBNI) to respectively collect $500 million from medium term notes (MTNs).

Lending and financing giants PT Bank Bukopin Tbk (BBKP) and PT Adira Dinamika Multifinance Tbk (ADMF) have also announced intentions to raise funds from the debt market.

Local ratings agency PT Pemeringkat Efek Indonesia (Pefindo) saw corporate bond issuance, including MTNs, grow by about 18 percent this year to Rp 60 trillion compared with the Rp 51 trillion raised last year.

Data from Indonesian capital market regulator Bapepam-LK shows that in the first two months of this year, Rp 6.75 trillion has been raised in the bond market by PT Surya Artha Nusantara Finance, PT Astra Sedaya Finance and PT Japfa Comfeed Indonesia.

That compares with Rp 2.32 trillion raised from initial public offerings (IPOs) and rights issues combined in the January-February period this year.

“Companies are balancing the source of their debt financing between the bank market and the capital market,” Guyett said. “It’s important for companies to balance their funding.”

“It’s much harder to make a comment about the IPO market and the stock market, just because there has been so much volatility, which will continue,” he added.

Stock markets worldwide saw extreme volatility in the third quarter last year and have yet to experience a bullish mood ever since.

Haryanto T. Budiman, managing director and senior country officer of JP Morgan in Indonesia, attributed companies’ appetites on bond issuance to the newly obtained investment grade from Fitch Ratings and Moody’s Investors Service, as well as the government’s successful debt sales, which created confidence in the market on Indonesian assets. (Esther Samboh/ The Jakarta Post)