Indonesia state airport operator says plans 1 trillion rupiah in sukuk for new airports

JAKARTA - Indonesia’s state airport operator PT Angkasa Pura I plans to issue 1 trillion rupiah ($76 million) in sukuk to fund the development of three new airports, Novrihandri, its Finance & IT Director told Salaam Gateway.

“We plan to issue 1 trillion rupiah in sukuk, and the remaining funds for the development will come partially from bank loans. From the banks’ perspective infrastructure is still a favorable sector,” said Novrihandri without giving a timeline for the issuance.

The total investment needed to develop the three airports is estimated to be 13.7 trillion rupiah, he said.

Syamsudin Noor Airport in Banjarmasin, the capital of South Kalimantan, will require 2.3 trillion rupiah in investment. The other two will be located in central Java: Ahmad Yani Airport in Semarang, North Java, will cost 2.1 trillion rupiah and in the south the new airport in Yogyakarta will need 9.3 trillion rupiah.

Novrihandri said the company’s top priority is to acquire land for the new developments, especially in Yogyakarta where the operator has set an August deadline to complete land acquisition, which will cost 4 trillion rupiah.  

The profit rate on the sukuk will range from 8.4 percent to 8.8 percent with tenor between 5 and 15 years, Novrihandri said.

“There is demand for sukuk from the market. We are also considering global sukuk to cater to a wider investor base,” he added.

The airport operator is currently selecting the joint lead underwriters for the sukuk issue.

Angkasa Pura I operates 13 airports across central and eastern Indonesia with average passenger capacity of 33 million a year. Three new airports will address the current lack of airport capacity across Indonesia, and accommodate 30 million more passengers a year by 2020, according to Novrihandri.

PIPELINE

Another state-owned institution, Bank Syariah Mandiri, Indonesia’s largest Shariah-compliant bank by assets, is planning to issue sukuk to increase its capital adequacy ratio (CAR) by 0.5 percent to 1.25 percent, according to Kusman Yandi, the bank’s director of wholesale banking. 

“We will raise a maximum 1 trillion rupiah in sukuk with returns of at least 9.5 percent by the end of this year,” Yandi told Salaam Gateway. 

The ten-year sukuk will have a five-year call option and be privately placed for pension funds, insurance companies and other investors, said Yandi.

Last year, the bank’s CAR reached 12.97 percent with core capital of 5.4 trillion rupiah, after a capital injection of 500 billion rupiah from its parent company Bank Mandiri.

Additional capital via sukuk will mean the bank can upgrade from Basel II to Basel III, which requires a minimum of 14 percent CAR.

SLUGGISH CORPORATE PIPELINE

Indonesia’s sukuk market is dominated by the sovereign and state-owned institutions and the corporate market is small.

This year, corporate issuances remain sluggish. Total issuance to date stands at 800 billion rupiah, from BPD Sumatera Barat (100 billion rupiah) and Bank Maybank Indonesia (700 billion rupiah).

Last year, total corporate sukuk reached 3.17 trillion rupiah, from only five corporates, according to data from Indonesia Bond Pricing Agency.

According to Wahyu Trenggono, director of IBPA, two corporate sukuk sales are in the pipeline, namely Bank Sulselbar’s 50 billion rupiah issue that will carry a profit rate of 9.3 percent and PT Tiga Pilar Sejahtera’s 1.5 trillion rupiah sukuk that will be priced between 10 and 10.75 percent.

“Given that returns on sukuk are relatively lower than for conventional bonds, market appetite for sukuk is still low. For investors if returns don’t fit the risk, they won’t buy sukuk,” said Trenggono. 

He added that investors still have to deal with regulatory uncertainties with regards to underlying assets. For example, sukuk regulations are still inadequate to address land acquisition, said Trenggono. “When investors can’t execute underlying assets that are promised in the prospectus, it harms investor confidence,” he said.

Corporates also prefer to issue conventional bonds as there is still a lack of demand for sukuk on the secondary market. Trenggono illustrated that a bond with a 7 percent return is more attractive than a sukuk with a higher 7.5 percent return because there is little to no risk that the bond will be unsellable in the secondary market.

Total corporate sukuk outstanding from 2011 to Dec 8, 2015 stood at 8.4 trillion rupiah, according to IBPA. This represents only 3.68 percent of all corporate bonds for the same period. These sukuk were issued by 15 corporates, with 4.6 trillion rupiah originating from companies in the transportation and infrastructure sectors. 

($1 = est 13,200 rupiah)

© SalaamGateway.com 2016