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Indonesia Infrastructures & Sukuk Update

IIFM Specialized Sessions on Islamic Finance at ISEF

7 November 2017, Surabaya

Herwin Bustaman

Head, Shariah Banking

Maybank Indonesia

Global Sukuk Update

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Global Sukuk – an Overview A rebound in 2016 after three consecutive declines after its peak in 2012

52.74%

29.79%

11.25%

6.23%

12%

Top Sukuk Market 2016

Malaysia Gulf Coorporation Council Indonesia Turkey Others

Source: Thomson Reuters, MIFC estimates

Global Sukuk Issuance USDbln

Top Sukuk Markets 2016

Source: Thomson Reuters, MIFC estimates

Source: Thomson Reuters, MIFC estimates

Source: Thomson Reuters, MIFC estimates

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Global Sukuk – an Overview New issuers are diversifying their funding source by tapping the Shariah investors

Source: Bloomberg

Malaysia

Bahrain

Indonesia

Kuwait

Pakistan

Qatar

Saudi Arabia

Singapore

UAE

Malaysia

Bangladesh

Brunei

Gambia

Japan

Turkey

United States

Bahrain

Indonesia

Kuwait

Pakistan

Qatar

Saudi Arabia

Singapore

UAE

Malaysia

Hong Kong

Kazakhstan

Luxembourg

Nigeria

Oman

Yemen

Bangladesh

Brunei

Gambia

Japan

Turkey

United States

Bahrain

Indonesia

Kuwait

Pakistan

Qatar

Saudi Arabia

Singapore

UAE

Malaysia

No.

of

Sukuk Iss

uin

g C

ountr

ies

( C

orp

ora

te +

Sovere

ign)

5

Togo

China

Ivory Coast

Jordan

Kenya

Senegal

South Africa

United Kingdom

Hong Kong

Kazakhstan

Luxembourg

Nigeria

Oman

Yemen

Bangladesh

Brunei

Gambia

Japan

Turkey

United States

Bahrain

Indonesia

Kuwait

Pakistan

Qatar

Saudi Arabia

Singapore

UAE

Malaysia

Year

10

15

20

25

30

1990 - 2000 2000 - 2005 2006 - 2010 2011 - 2013 2014 - 2016

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2016 and beyond: governments of

Jordan, Ivory Coast, Togo, Kenya and

Oman made their debut in the global

Sukuk market. This phenomenon is

expected to grow further as

governments of Ecuador, Egypt,

Kazakhstan, Mexico, Morocco, South

Korea, Thailand, Philippines and

Tunisia explore potential debut

sovereign Sukuk issuances.

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Sukuk: Avenue for Infrastructure Financing

Long-term and stable cash flow

Enhanced liquidity and wider investor base

Deepened available capital pool

Longer debt maturities

Key ingredients for Infrastructure Project Financing

Infrastructure projects with long-term concessions and stable cash

flows features that are derived from clear asset sources give

certainty for financing. This features also suits financing via Sukuk.

Sukuk issuances attracts liquidity from both Islamic and

conventional investors in the global Sukuk markets

Infrastructure financing requires large amount of financing.

Traditional financing under Islamic financial institutions are

restricted by single customer limit. The availability of Sukuk as

an alternative source of financing for infrastructure projects and

source of capital.

With longer debt maturities the repayment can be spread out for

the Customer. Infrastructure projects would involve long

construction period, thus with longer maturities it will provide

ample time to build up the cashflow.

Issuer Country Islamic

Structure Issue Date Currency

Amount

Outstanding

(million)

Coupon

(%)

Tenure

(Years)

Type of Infrastructure

Project

Saudi Electricity Global Sukuk

Company 3 Saudi Arabia Ijarah 8-Apr-14 USD 2,500.0 4.00, 5.50 10.0, 30.0

Power Plants & Electricity

Transmission Network

Syarikat Prasarana Negara Bhd Malaysia Ijarah 12-Mar-14 MYR 2,000.0 4.08, 4.67 5.0, 10.0 Light Rail Transit

TNB Western Energy Bhd Malaysia Ijarah & Wakalah 30-Jan-14 MYR 3,655.0 5.06 – 5.80 10.5 - 20.0 Power Plant

Perusahaan Listrik Negara PT Indonesia Ijarah 10-Dec-13 IDR 429,000.0 9.00, 9.60 5.0, 10.0 Electricity Transmission

Network

Sarawak Hidro Sdn Bhd Malaysia Ijarah 14-Oct-13 MYR 1,000.0 4.60 15.0 Hydroelectric Dam

DEWA Sukuk 2013 Ltd United Arab

Emirates Ijarah 5-Mar-13 USD 1,000.0 3.00 5.0

Power Plants & Water

Desalination Plants

Tanjung Bin Energy Issuer Bhd Malaysia Murabahah 16-Mar-12 MYR 3,290.0 4.65 – 6.20 5.0 – 20.0 Power Plants

Projek Lebuhraya Usahasama Bhd Malaysia Musharakah 12-Jan-12 MYR 30,600.0 3.90 – 5.75 5.0 – 27.0 Expressways

Notable Sukuk Issuance for Infrastructure Project Financing in Asia

Indonesia Infrastructure Projects Update

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Indonesia continues to make progress Showing improvement on Global Competitiveness and Governance Indicators

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Indonesia consistently improves its EDBR The “Ease of Doing Business Rank (EDBR)” improves further from 91 to 72

Source: World Bank

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Indonesia is still trusted by large investors Indonesia continues to enjoy large investments relative to peers in the Region

Source: Bank Indonesia

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Indonesia is committed with the Reform The Country also has a conducive environment

Source: Bank Indonesia

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Infrastructure Financing Need 2015-2019

Source: Bank Indonesia

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Infrastructure Projects Achievement in 2015 & 2016

Source: Bank Indonesia

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Significant Progress on Infrastructure Projects

Source: Bank Indonesia

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Efforts to Accelerate Infrastructure Provision The government has enacted reforms to accelerate infrastructure provision

Source: Bank Indonesia

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Indonesia Sukuk Update

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Local Currency Bonds & Sukuk Market Still at a healthy proportion (of total outstanding securities as compared) to GDP

Size of Indonesia Local Bonds and Sukuk Market as % of GDP

(2000 – 2016)

(%)

Date Government (in

%GDP)

Corporate (in

%GDP)

Total (in

%GDP)

Dec 2000 35.39 1.36 36.75

Dec 2001 29.83 1.14 30.97

Dec 2002 26.18 1.18 27.36

Dec 2003 24.71 2.25 26.96

Dec 2004 21.92 2.56 24.48

Dec 2005 17.1 2.08 19.18

Dec 2006 18.82 1.84 20.66

Dec 2007 18.37 2 20.37

Dec 2008 13.03 1.35 14.38

Dec 2009 14 1.47 15.47

Dec 2010 12.3 1.67 13.97

Dec 2011 10.81 1.88 12.69

Dec 2012 10.48 2.18 12.66

Dec 2013 11.43 2.29 13.72

Dec 2014 12.37 2.11 14.48

Dec 2015 13 2.16 15.16

Mar 2016 14.03 2.16 16.19

Source: Asian Bonds Online, data as at March 2016

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Project Financing Government Sukuk

Ministry of Transportation

(IDR7.543 trillion):

•Elevated & Double Track Railways (Jabodetabek, Central Java, East Java, Sumatera & Sulawesi).

Ministry of Public Works &

Housing (IDR7.429 trillion):

•Roads, flyover/underpass/ tunnel & bridges development (Sumatera, Java, NTB, Kalimantan, Sulawesi, Maluku & Papua)

•Flood and lava control, management of urban main drainage and coastline security, management of dams, embung, and other water containers buildings, raw water supply and management

Ministry of Religious Affairs

(IDR1.792 trillion):

•Revitalization and Development of Hajj Dormitory (11 locations)

•Development/rehabilitation of Religious Affairs Office (256

KUA)

•Development of the State Islamic Higher Education building and facilities (32 PTKIN)

2017

IDR16.76 Trillion

Ministry of Transportation

(IDR4.983 trillion):

•Elevated & Double Track Railways (Jabodetabek, Central Java, East Java & Sumatera).

Ministry of Public Works &

Housing (IDR7.226 trillion):

•Roads, flyover/underpass/

tunnel & bridges development (Sumatera, Java, NTB, Kalimantan,

Sulawesi, Maluku & Papua).

Ministry of Religious Affairs

(IDR1.468 trillion):

•Revitalization and Development of Hajj Dormitory (7 locations)

•Development/rehabilitation

of Religious Affairs Office (181 KUA)

•Development of the State Islamic Higher Education building and facilities (25 PTKIN)

2016

IDR13.67 Trillion

Ministry of Transportation

(IDR2.92 trillion):

•Elevated Track Railways (Medan – Kualanamu)

•Double Track Railways (Martapura – Baturaja & Cirebon – Kroya)

•Railways facilities

(Manggarai – Jatinegara & Jatinegara – Bekasi)

Ministry of Public Works &

Housing (IDR3.51 trillion):

•Roads and bridges Development (Sumatera, Jawa, NTB, Kalimantan, Sulawesi, Maluku & Papua).

Ministry of Religious Affairs

(IDR675 billion):

•Revitalization and Development of Hajj Dormitory (8 locations)

•Development/rehabilitation of Religious Affairs Office (19 KUA)

•Development of the State Islamic Higher Education building and facilities (7 PTKIN)

2015

IDR7.13 Trillion

Ministry of Transportation

(IDR1.371 trillion):

•Double Track Railways (Cirebon – Kroya)

•Double Double Track Railways (Manggarai – Jatinegara)

•Double Track Railways (Jatinegara – Bekasi)

Ministry of Religious

Affairs

(IDR200 billion):

•Revitalization and Development of Hajj Dormitory (Medan, Padang, Jakarta)

2014

IDR1.57 Trillion

Ministry of Transportation

(IDR800 billion):

•Double Track

Railways (Cirebon –Kroya)

2013

IDR800 Billion

Source: Ministry of Finance (Indonesia)

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Outstanding Value by Instrument Type Shariah portion: 12.9% (vs. among Corporate Issuers: 3.6%)

Notes: Data as of the end of December 2016; percentages valid for each issuer type.

Sources: - For government debt securities, data on tradable securities are from http://www.djppr.kemenkeu.go.id\;

- for corporate bonds, data are sourced from CTP-PLTE;

- for Bank Indonesia issuances, Bank Indonesia data are used.

In Respective

Issuer TypePer Issuer Type Per Instrument

SUN Government Debt Securities 1,486,530.25 58.5% 49.4%

SBSN Government Shariah Securities 240,593.50 9.5% 8.0%

SPN Treasury Bills 41,040.00 1.6% 1.4%

SPN-S Islamic Treasury Bills 7,700.00 0.3% 0.3%

SUN FCY Treasury Bonds in a FCY 639,186.52 25.1% 21.2%

Sukuk Negara FCY Government Shariah Securities in FCY 127,642.00 5.0% 4.2%

SBI Bank Indonesia Certificates 105,377.00 69.2% 3.5%

SDBI Certificate Deposit Bank Indonesia 46,985.00 30.8% 1.6%

Bonds Corporate Bonds (Maturity > 1year) 223,210.86 71.0% 7.4%

Notes Notes (Maturity < 1year) 77,090.00 24.5% 2.6%

ABS Asset-Backed Securities 2,808.42 0.9% 0.1%

Sukuk Corporate Shariah Bonds 11,428.00 3.6% 0.4%

Conventional 2,622,228.05 87.1%

Syariah 387,363.50 12.9%

5.1%

10.5%

Government

Bank Indonesia

Corporate

84.5%

Issuer TypeType of

InstrumentConventional or Shariah

Outstanding

Amount

(IDR Billion)

% of Total Outstanding

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Challenges & Recommendations

No Key Opportunity Areas Challenges Intervention Required

1 Talent Development Industry is suffering from lack of good talents

especially in capital market to help drive the

industry

• Develop local talent by encouraging conventional investment bankers to join the industry

• Scholarship program, not only for the regulator, but also for scholars

• Expatriate-friendly policies

2 Encouraging Issuers to

issue Sukuk

Issuers need extra handholding when it comes

to issuing Sukuk

• Detail manual for issuing Sukuk with standardised Shariah structures

• Other than a cap in OJK listing fee, ISE listing fee should also be capped for Sukuk

issuance

3 Encouraging Investors to

invest in Sukuk

Investors should also be encouraged to invest in

Sukuk

• Funds related to Islamic religious activities should be invested in Shariah compliant

investments

• Pension funds shall also be invested in Shariah compliant investments (the proportion

should at least be inline with the market share of Shariah finance)

• State budget (APBN) shall also be channelled through Shariah banks to finance government

sponsored infrastructure projects to help reduce COF

• Supporting industries genuinely require Sukuk instruments (i.e. Takaful, Pension Funds, &

Assets Management) should be incentivise to speed up the development

• Ideally, income tax on Shariah funds should be lower than conventional given the floating

nature of the return

4 Government is spending

USD416bio from 2014-

2019 for infrastructures

Shariah banks are still facing some structural

issues i.e. High COF

• Mudharabah Muqayaddah product can be a unique product for Shariah banks to facilitate

depositors to provide financing directly to government infrastructure projects

• Lowering RWA calculation (by 10pts) if Shariah banks are financing SOEs

5 Complete product range

for Financing & Hedging

Instruments

Limited products availability especially when it

comes to revolving financing and hedging

instrument products

• Commodity Murabaha structure, as the basis for revolving financing & hedging instruments,

should be accepted

• More flexible liquidity instruments

Thank You