In a surprising turn of events on the Asian asset backed securitization (ABS) scene, news has emerged from Jakarta of two potential transactions by state-owned organisations. Pertamina, the oil and gas giant, and Bank Negara Indonesia (BNI), the largest publicly traded bank in Indonesia, have both held beauty parades for potential ABS deals in the last couple of months. Both foreign and local houses have been invited to pitch.
Details are still fairly sketchy on the Pertamina transaction, other than it is believed to be a renewed effort to do a deal backed by gas revenues. The company has been linked with such an issue at various times in the past and nothing has ever come of it, but a well-informed source assured FinanceAsia the beauty parade did take place, although Pertamina has yet to make any decision.
BNI sent out its own RFP shortly after Pertamina, with ABN AMROI and CSFB believed to be among the foreign banks that pitched along with local houses such as Bahana Securities and Danareska. According to the source, the deal would be a local currency offering backed by credit card receivables. A decision by BNI was expected in early March, but the bank is still considering its options.
If either of the deals gets done, they would be the first to come out of the country in over five years. The Indonesian ABS market ground to halt in 1997 just as it looked set to become a good source of activity. PT Astra International got the ball rolling in August 1996 with a $200 million issue backed by auto loans via Barclays Capital. The deal was rated triple-A by S&P and Moody's on the back of a monoline wrap by Financial Security Assurance.
A couple of domestic auto loans deals followed, but the last deal completed in Indonesia was backed, interestingly enough, by credit card receivables. Bank Internasional Indonesia in July 1997 issued $140 million of ten-year bonds via Citibank. The deal was unwrapped, priced at 140bp over Libor and was rated at the triple-B level by Fitch.
Not long after BII's deal, however, the Asian financial crisis took hold, effectively killing the development of ABS market in Indonesia. Highlighting how times have changed since 1997, BII's deal is now rated B- by Fitch.
Nevertheless, if you were taking a punt on which of the Pertamina and BNI deals was likely to go ahead, BNI would have to be the favourite, albeit a long odds one. The bank said in February that it has to raise funds to repay around $190 million of debt maturing in June. So its need for funds is no secret, and securitization is an option. The Indonesian legal system does allow for credit card deals, so that would not be an issue.
However, as one head of investment banking at a foreign house's Jakarta office explains, although a deal could happen, it still seems unlikely. "I have not heard about this deal, but BNI has sent out a number of RFPs recently so it is possible I guess," the banker says. "Credit cards are viable, and local investors would be comfortable buying a deal issued by a state bank. But you have to question what BNI's motivation would be for doing securitization. They would have to pay a yield premium over a straight debt deal. And, as I said, they have no problems accessing the straight debt market anyway, so why would they want to do a deal that would be more expensive for them?"
There seems little chance that either BNI or Pertamina could access the international market either. "Any deal would have to be a local currency offering because of the enforceability of the Indonesian legal system," argues one head of ex-Japan Asian ABS at a European bank in Hong Kong. "The supposed benefit of securitization to the investor is that they get more protection: they can seize the assets if a deal goes wrong. That works fine in a solid legal jurisdiction, but you just would not be able to enforce it in Indonesia."
Pertamina has already demonstrated its reluctance to comply with legal rulings before on the Karaha Bodas dispute, contesting a ruling that was deemed fair in five different jurisdictions (see related articles).
Either way, the re-emergence of securitization in Indonesia through local currency or offshore deals continues to look unlikely, unless the government is involved behind the scenes in trying to promote the market.
What is revealing is that foreign houses are willing to devote their time and effort on markets that have, up until recently, been regarded with scepticism. The temporary derailment of the Korean cross-border ABS gravy train means that they have to seek opportunities doing local currency deals in non-core markets. That is no bad thing, especially if it helps further the development of securitization in countries such as Indonesia, the Philippines, Thailand, Malaysia and Taiwan.