Two Indonesian state-owned firms, Bank Negara Indonesia and electricity company Perusahaan Listrik Negara, have sent out requests for proposals to their relationship banks, testing appetite for loans amid a bounceback in activity from the country.
Banks that received the RFPs have already responded to the two borrowers and are now awaiting their replies.
The deal size, pricing and tenor are all undecided. But there is already some optimism among lenders that the two transactions will be gobbled up quickly.
“Pricing will be a key issue,” a banker whose firm received the RFPs told GlobalCapital Asia. “As it’s a slow market, the borrowers could offer a margin lower than our expectation. If the margin is okay, I believe we will try to participate.”
She added that both PLN and BNI are “repeat names” in the loan market with decent track records.
“Normally the bookrunners would underwrite the two deals and the tenors could be as long as five years,” she reckoned. “Although it’s still at an early stage, the negotiations with the borrowers will take some time.”
In addition, the banker thinks the BNI deal will be more popular than the PLN loan.
“Financial institutions are traditionally under more stringent regulations than other sectors, which makes them more secure and stable. Besides, we belong to the same industry, so we are more familiar with their business models,” she said.
“We can easily understand their financial reports, but for the oil or electricity sectors we need to spend plenty of time and effort to figure out their financial performance,” she added.
Single country risk
The two proposals come after Indonesian oil and gas company Pertamina launched its $2.5bn jumbo deal into syndication last month. Some Taiwanese banks have decided to participate in the deal and are awaiting internal approvals.
Also, Bank Rakyat Indonesia’s $1bn deal is expected to be launched soon, GlobalCapital Asia understands.
The spurt in deals from the southeast Asian country has raised some questions over whether banks will have enough liquidity to support all the transactions. This is because many lenders have limits on how much they can lend to clients from one particular country, and even from one particular industry.
“Many banks need to diversify single country risk, but even if our quota for Indonesia is full at the time we may still participate in the two new deals,” the banker said.
Another banker whose firm participated in BNI’s and PLN’s past deals said country risk is not their top concern.
“It’s a slow market and we really want to do more deals. We certainly need to take country risk into consideration, but the companies belong to different sectors and their business models are different,” he said.
“We cannot miss good opportunities just because of the single country risk. So, if the pricing allows, we will definitely consider participating,” he added.
A third loans banker, whose firm also participated in past fundraisings by the two firms, said that, as they are state-owned, her bank will have a look at the new deals.
“However, if the margin is too low, we really cannot support them due to the interest rate hikes from the Fed and rising funding costs,” she said.
In mid-June, the US central bank raised rates by 75bp to 1.5%-1.75%. This was its largest hike since 1994. On July 27 (US time), the Federal Reserve made another hike of 75bp, taking the benchmark rate to a range of 2.25%-2.5%.
“To be honest, we are still cautious about the Indonesian market because of the major defaults in recent years. At that time, a lot of banks were impacted and we can still feel the pain now,” added the third banker.
For example, palm oil producer Perkebunan Nusantara III (PTPN) signed an extension agreement on a loan in April 2021, after a year of discussions with banks, as GlobalCapital Asia reported. The deal was a $390.6m facility; its tenor was extended by five years to December 2025. The restructuring was driven by PTPN missing a $10m payment.
Despite that incident, banks are willing to look forward, for the right credits from the right sectors.
“For Indonesian financial institutions, we can be more tolerant, as they are more stable and very unlikely to default. But for other sectors, we are still cautious and careful, in case the same incidents happen again,” she said.
Moody’s put Indonesia’s sovereign credit rating at Baa2 in February and S&P Global Ratings put it at BBB in April. Fitch Ratings affirmed the long-term foreign-currency issuer default rating at BBB in June.
Fitch expects Indonesia’s GDP growth to reach 5.6% in 2022 and 5.8% in 2023, as economic activity in the services sector picks up following a disruptive Delta wave last year, when growth was 3.7%.
“The recovery is also supported by strong net exports, including the impact of higher commodity prices. Still, risks to growth remain given pressure from global inflation and potentially slower growth, including in China, and faster monetary tightening than we currently expect,” Fitch said in its note.
Strong past
The last time BNI tapped the syndicated loan market was in February 2020 for a $970m deal. CTBC Bank, MUFG, Standard Chartered, Sumitomo Mitsui Financial Group and UOB were the bookrunners, according to data from Dealogic.
PLN is a frequent name in the loan market, last seeking out lenders in December 2021 for $500m. DBS, Maybank, Mizuho, MUFG, OCBC and SMFG were the MLAs, data from Dealogic shows.
The company initially attempted to borrow $1bn at the beginning of last year after sending out an RFP in December 2020. However, as the bids it received failed to meet its pricing expectations, it made another attempt for the borrowing in September.
That was not the first time PLN had changed its loan plans. In April 2020, it sent out an RFP for a $1bn loan to a wide group of banks. But a few months later, in July, it changed its strategy to raise three separate deals instead of one chunky facility.
At that time, it mandated banks for a $300m one year syndicated loan and a $500m five year club. It also sent a new RFP for a Rph12tr ($810m) onshore facility, GlobalCapital Asia previously reported. In December 2020, PLN closed the club loan and a Rph8.8tr onshore borrowing, according to Dealogic.
Separately, PLN cancelled a $300m one year loan in 2020 after receiving a capital injection of Rph9.6tr from the government to support the development of renewable energy plants, power lines and substations. Korea Development Bank, Mizuho and Sumitomo Mitsui Banking Corp had been initially mandated.