JAKARTA: Indonesian companies are turning to the local debt market to refinance dollar debt in a bid to limit the impact of currency volatility and capitalise on growing domestic demand for bonds. Animal feed manufacturer Japfa Comfeed is among those looking at rupiah bonds to repay its US dollar obligations.
“We might refinance the dollar debt through rupiah issue or another dollar offering or both,” said Elvina Apandi Hermansyah, vice president and head of investor relations.
Japfa has $199 million of dollar debt maturing in 2018. It has regulatory approval to raise up to 3 trillion rupiah ($226 million), of which it raised Rp1trn last year. Its onshore bonds have a A+ rating from Pefindo. Other companies are also looking at rupiah bonds.
Tyre-maker Gajah Tunggal said in an email to IFR it would look at rupiah bonds depending on market conditions. The company said it planned to refinance all or part of its dollar debt through loans and/or bonds before the end of the first half of 2017.
Gajah has $500 million of dollar bonds maturing in February 2018 that need to be refinanced, and is under pressure from rating agencies to confirm a concrete refinancing plan.
“Gajah Tunggal may possibly look at raising money through rupiah bonds and/or loans,” said R Lakshmanan, research analyst at CreditSights. The tyre-maker has more than half of its revenue in US dollars. It might refinance part of the debt with a dollar offering and part through an onshore offering, said another analyst.
In December, S&P cut the bond rating to CCC+ from B-, while Moody’s has downgraded it to B3 from B2, as concerns over refinancing risk outweighed a solid operating performance and strong market position.
Chandra Asri Petrochemical also turned to the domestic bond market in November, when it issued Rp500bn of rupiah bonds to replace dollar debt. RISING DEMAND The trend coincides with efforts of Indonesian authorities to encourage more domestic buying of rupiah bonds.
In January last year, the Financial Services Authority (OJK) introduced mandatory government bond holdings for insurance and pension funds.
Indonesia’s social security fund, BPJS, was required to have 50 percent of its employment fund’s assets in government bonds or state-owned enterprise infrastructure bonds before the end of 2016, while life insurance companies and pension funds had to hold 20 percent.
