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Updated News January 31, 2012

Tue, 01/31/2012 - 14:30

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Government Relations and Economic Development



Rupiah Gains for Second Month as Rating Lifts Demand for Bonds
Bloomberg, 30/01/2012

Indonesia’s rupiah was headed for its best start to a year since 2008 after the nation regained its investment-grade ranking, spurring global funds to plow more cash into the nation’s bonds and stocks.

The currency advanced for a second straight month after Moody’s Investors Service raised its credit-rating one step to Baa3 on Jan. 18, following a similar move by Fitch Ratings in December. Standard & Poor’s, which accorded Indonesia the highest junk rating, may follow, according to Standard Chartered Plc, which forecast 10-year government bond yields will fall to new lows this quarter.

“Positive sentiment and confirmation from the rating companies would continue to support the rupiah and bond markets,” said Wiwig Santoso, head of treasury and markets at PT Bank DBS Indonesia in Jakarta. “Indonesia’s economy is still in a good position to continue to grow.”

The rupiah advanced 0.6 percent this month, the most in a January for four years, to 9,014 per dollar as of 9:30 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency was little changed today and may trade between 8,600 and 8,800 this quarter, Wiwig said.

Gross domestic product increased 6.38 percent in the final quarter of 2011 from a year earlier, versus 6.54 percent in the third quarter, according to the median forecast of economists in Bloomberg News survey before official data due on Feb. 6. Southeast Asia’s biggest economy is “likely to stay on the upward trajectory,” Trade Minister Gita Wirjawan said in a Bloomberg TV interview on Jan. 29 from Davos, Switzerland.

Yields Decline

The credit-rating upgrades, together with solid economic growth and external balances, should spur the rupiah’s appreciation, Standard Chartered said in a Jan. 30 research report. Emerging-market money managers may allocate more funds to Indonesia while central banks may add the nation’s bonds and currency to their reserves, it said.

Overseas investors bought about $280 million of local stocks more than they sold this month, according to exchange data. They raised their holdings of government bonds to 230.4 trillion rupiah ($25.6 billion), up 3.4 percent from Dec. 31, government data show.

The yield on the 7 percent notes maturing in May 2022 fell 65 basis points this month through yesterday to 5.45 percent, based on prices from the Inter-Dealer Market Association. The rate dropped three basis points, or 0.03 percentage point, today, according to prices from Standard Chartered.

“Feedback from onshore investors reveals that they have ample cash to invest,” said Jennifer Kusuma, a rates strategist in Singapore at Standard Chartered, who forecast 10-year yields will drop to 5.25 percent this quarter. “Supply risks are also minimal.”

The government plans to auction Islamic bonds maturing in 2018, 2022 and 2027 today as well as regular notes maturing in 2036 to help finance its development spending, according to its sale calendar.

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Standard Chartered Bank Sees Rupiah Under Pressure from Euro Debt Crisis
Muhamad Al Azhari. The Jakarta Globe, Jakarta - 30/01/2012

Standard Chartered Bank said the rupiah’s recent strengthening against the dollar was caused by euphoria from Moody’s Investors Service credit-rating upgrade on Indonesia two weeks ago.

But the lender warned that Indonesia’s currency might be under pressure in the short term from the debt crisis in the euro zone before strengthening again by the end of 2012.

The rupiah exchange rate “has bounced in recent sessions amid euphoria following the Moody’s rating upgrade,” said the British-based lender, which gets two thirds of its income from Asia.

However, a report by Stanchart on Monday says that during the “near-term, the rupiah is vulnerable to positioning and liquidation dynamics.”

The bank’s analysts said the mounting euro zone crisis could prompt investors to put money in assets deemed as safe haven.

Stanchart forecasts the rupiah exchange rate against the dollar to weaken to Rp 9,400 per dollar at the end of the first quarter of 2012. The lender predicted the rupiah at 8,700 by the end of the year. Moody’s raised Indonesia’s bond ratings to investment grade on Jan. 18. The rupiah has gained 2 percent since that upgrade. It closed at 8,985 on Monday.

Stanchart said that the ratings upgrades, “together with Indonesia’s solid growth and external balances, should support the rupiah over the medium to long term,” without specifying timeframes.

Stanchart forecasts Bank Indonesia, the central bank, to cut its key overnight interest rate by another 25 basis points sometime during the first half in a bid to maintain economic growth.

“Indonesia’s strong fundamentals and fiscal position will encourage inflows over the longer term,” the bank said.

Fitch Ratings last month raised Indonesia’s long-term and local currency debt rating, to BBB-, putting the country into investment grade for the first time in 14 years. The outlook on both ratings is stable, Fitch said.

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Manulife Seek 25% Growth Amid Hot Demand for Bonds
The Jakarta Globe, Jakarta - 30/01/2012

Manulife’s asset management business in Indonesia is aiming to boost the funds under its watch by 25 percent this year through the establishment of three new offices in the country.

But the recent upgrade to Indonesia’s sovereign debt rating by two agencies will not prompt the company to change its strategy, Manulife Asset Management Indonesia director Putut Endro Andanawarih said at a seminar in Jakarta.

At the end of 2011, MAMI had Rp 36 trillion ($4 billion) under its management and the company expected that amount to increase to Rp 45 trillion by the end of this year, Putut said.

He added that 50 percent to 60 percent of funds would be invested in the equity market this year, with the rest in various investments including fixed income assets and money market.

“As of today, there won’t be any big change. Fixed income is still the darling of foreign investors,’’ Putut said, referring to the investment category of which bonds are the biggest component. “Investment in fixed income is less volatile.”

Moody’s Investors Service, the US rating assessor, upgraded Indonesia’s sovereign debt rating this month to investment grade following Fitch Ratings’ similar move in December.

Putut said Manulife invested around Rp 1.2 trillion in the government’s rupiah-denominated bonds last year.

“The funds were invested in various maturities of government bonds,’’ he said.

Manulife’s funds were invested in government 30-year, 20-year and 15-year bonds, with the average duration being 6.4 years. Putut said the company recorded a return on its investment in government bonds of 18 percent last year, more than double the yield of funds in the country’s banking system.

The average interest rate on deposits in the country’s banking system stood at around 7 percent last year, according to data from Bank Indonesia.

Putut warned of risk in investing in Indonesia’s corporate bonds, though he did not elaborate. Sales of Indonesian corporate bonds are forecast to rise to Rp 55 trillion this year, according to Baradita Katoppo, president director of Fitch Ratings Indonesia.

Indonesian companies raised a combined Rp 30.7 trillion in bond sales last year, according to data from the Indonesia Stock Exchange. The benchmark Jakarta Composite Index rose 3.2 percent last year, significantly below the 46 percent rise in 2010.

Putut said Manulife wanted to tap more of Indonesia’s “mass-affluence” market this year and attract more customers. “This is a new market,” Putut said.

MAMI is part of MFC Global Investment Management, a Canadian company that has in recent years sought to aggressively expands its business in Asia.

The company is in the midst of opening new offices in Semarang, Central Java; Pontianak, West Kalimantan; and Lhokseumawe, Aceh.

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Energy and Mining

Timah to spend $100m to build high-tech dredgers
The Jakarta Post, Jakarta - 31/01/2012

Publiclylisted tin miner PT Timah plans to allocate at least US$100 million to build two new bucket wheel dredgers (BWDs) as part of the company’s program to increase tin ore production from offshore mining.

Timah corporate secretary Abrun Abubakar said that the company was preparing a detailed engineering design for the BWD.

“We will soon open the bidding for the design works to interested parties, both local and foreign BWD producers,” Abrun told The Jakarta Post over the telephone on Monday.

According to Abrun, Timah currently has no BWD. He said that Timah expected that the tender process would be completed this year as the company expected the two BWD to be ready for operation in 2014.

Besides investing in new BWD, Timah is also carrying out modifications on one of its 11 bucket ladder dredgers (BLD). Only seven out of its 11 BLDs are in operation. A BWD dredger uses new technology that enables it to carry out mining activities at a depth of up to 70 meters. The BWD ship’s dredging capacity is two times higher than that of BLDs.

“The modification needs about Rp 180 billion [$20.16 million]. This is a new technology and we hope to be able to try the modified BLD in the second half of this year. If the modification succeeds and performs well, we will continue to modify other BLDs,” Abrun said.

Timah is also planning to have five more cutter-suction dredgers.

“We are performing feasibility studies of the plan. We need to be sure of our tin reserves, because it will be useless if we have more cutter-suction dredgers but we don’t know where they will operate,” Abrun said.

According to a file available in its recent public presentation, Timah had 1.03 million tons of tin resources and 394,583 tons of tin reserves in 2010. The proven tin reserves are estimated to be available for mining for up to the next 20 or 30 years.

Abrun revealed that Timah, which already has 10 cutter-suction dredgers, would rely on its subsidiary PT Dok & Perkapalan Air Kantung to build the dredgers.

According to Abrun, Timah will require about Rp 30 billion to 35 billion for each cutting-suction dredger.

All spending for dredgers will come from Timah’s capital expenditure. Abrun said that the company had not decided the exact amount of its capital expenditure for 2012. Timah president director Wachid Usman said recently said that the expenditure would be around Rp 2 trillion.

The company needs more dredgers to support production from marine mining. Wachid said that his company planned to focus more on marine tin mining in anticipation of the decline in land-based mining.

“There are various issues, including illegal tin mining that is destroying Timah’s reserves, which are overlapping the utilization of lands, giving rise to a long process to get permission for mining in forest areas,” Wachid said.

Timah estimated that tin production reached 33,000 metric tons in 2011. The company aims to boost production to between 40,000 42,000 metric tons this year, according to Abrun.

“We expect more tin from marine mining this year,” he said. (rcf)

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Transportation

40 new airline routes set to open this year
The Jakarta Post, Jakarta - 31/01/2012

At least 40 new airline routes will link the country’s cities this year as flight services are expanded to meet surging demand from local travellers, a Transportation Ministry senior official said.

“As of Jan. 30, we are processing as many as 21 new routes that will be opened this year, and the figure may double in April,” the ministry’s air transportation director Djoko Murjatmodjo told The Jakarta Post on Monday.

The 21 new routes consist of 16 domestic routes and five international routes, he said.

The new routes will include Ternate–Morotai, Makassar–Muna, Pangkalanbun–Solo, Pangkalanbun –Pontianak, Biak–Manokwari, Kupang–Larantuka and Banjarmasin –Solo.

The Ternate–Morotai route will be opened to support the Sail Morotai maritime promotion campaign that will be held in the third quarter of 2012, he said, adding that the new service would be provided by Travel Express airline.

“This is also part of building infrastructure in the east part of Indonesia, which in the end will bring wealth and prosperity to its people,” he said.

For the international routes, he said that the five new routes were Tarakan–Tawau City (Sabah, Malaysia), Denpasar–Tokyo via Haneda airport, Denpasar–Manila, Jakarta –Mumbai (India) and Jakarta–New Delhi.

The Tarakan–Tawau City route will be managed by Malaysia based airline MASwings, Denpasar–Haneda by national flag carrier Garuda Indonesia, and both routes to India will be managed by the new full-service player Pacific Royale.

“The Denpasar–Manila route will be served by Philippines Airlines and Cebu Pacific,” he added.

Throughout 2011, there were 26 new domestic routes and five international routes opened that connected different cities across the archipelago, such as Bandung–Semarang, Denpasar–Malang, Medan–Surabaya, Jakarta–Shenzen, Jakarta–Nanning and Semarang–Kuala Lumpur.

The opening of the new routes helped the government meet its target of increasing air passengers by 15 percent last year.

Based on the ministry’s recent data, the number of domestic and international travelers reached 58.84 million and 7.2 million in 2011, respectively.

At the end of 2010, the figure of domestic travelers was 51.7 million, while international travelers reached 6.6 million.

Meanwhile, privately owned Pacific Royale will start operations in March, with two Airbus A320-200s and two Fokker 50s.

The airline has secured approval to fly 81 routes, 70 percent of which will be domestic.

Mandala Airlines may also resume flight services on its existing 16 domestic routes and four international routes in February. (nfo)

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Tiger buy could lead to new carrier
The Australian, 31/01/2012

Another airline competitor could emerge to Australia's north after Tiger Airways completed the acquisition of a 33 per cent stake in Indonesia's Mandala Airlines.

The restructured airline, which lost its operating permit early last year because of financial problems, expects to start servicing domestic and international destinations from April using Airbus A320s and Tiger's business model.

Although Mandala has yet to reveal routes and destinations, its proposed five-hour flying radius covers a number of Australian ports. It offers Singapore-based Tiger another avenue to connect with the domestic operations of its Australian subsidiary.

The bid to save the financially troubled carrier has involved a significant restructuring. Tiger holds its stake through Singaporean subsidiary Roar Aviation, while Indonesia's Saratoga Group has taken a 51.3 per cent slice and 15.7 per cent of the airline is held by previous shareholders and creditors.

The deal is the latest of several moves by Tiger to establish a pan-Asian strategy and comes after failed attempts at joint ventures in Thailand and Korea.

The Indonesians have yet to give Mandala regulatory approval to restart operations, but Tiger said yesterday Mandala's air operator's certificate would be reactivated next month so it could begin selling tickets for the April relaunch.

"Mandala is the first of Tiger Airways' joint venture 'cubs' and represents a significant step in our efforts to expand our 'paw-print' in this region," Tiger Airways chief executive Chin Yau Seng said.

The Tiger expansion comes as Royal Brunei announced yesterday that it was boosting services to Melbourne from four per week to daily.

The increase, due to take effect from March, will add almost 89,000 additional seats a year to the Brunei-Melbourne market.

Melbourne Airport chief executive Chris Woodruff said it would allow passengers to make the most of Royal Brunei's extensive network to other locations, including top Melbourne long-haul markets Britain and China.

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Singapore's Tiger Airways buys Indonesian carrier PT Mandala Airlines stake
AFP, 30/01/2012

Singapore budget airline Tiger Airways said today it had bought a 33 percent stake in beleaguered Indonesian carrier PT Mandala Airlines as part of its regional expansion plans.

The investment will see Tiger Airways become the second biggest shareholder in Mandala, which has undergone financial restructuring after being grounded in January last year due to massive debts.

Indonesian investment company Saratoga Group will hold a 51.3 per cent stake while the remaining 15.7 per cent will be held by Mandala's previous shareholders and creditors.

Tiger said in a statement that the investment in Mandala will be held through a wholly-owned subsidiary, Roar Aviation Pte Ltd and expects the firm's air operator's certificate to be reactivated next month and flights to resume in April.

Mandala Airlines -- which was owned by the Indonesian military until 2006 when private investors took over -- will adopt Tiger Airways' low-cost carrier model and will use Airbus A320 aircraft in its fleet.

It aims to fly within Indonesia and to international destinations within a five-hour flying radius.

The number of aircraft, and the initial routes and destinations "will be announced once all approvals have been granted by the regulators and authorities," said Tiger Airways, which is partly owned by Singapore Airlines.

"Mandala is the first of Tiger Airways' joint venture 'cubs' and represents a significant step in our efforts to expand our 'paw print' in this region," said Tiger Airways Holdings Ltd chief executive Chin Yau Seng.

Tiger Airways, which has domestic operations in Australia, has been looking for expansion opportunities in Asia and last year it raised more than USD 126 million in a rights issue to fund its plans, including the purchase of aircraft.

The acquisition comes as Tiger Airways itself struggles to rebuild its dented reputation after aviation regulators in Australia grounded its domestic services for six weeks last year, citing safety concerns.

The suspension in July last year led to a major management shake-up in the airline, which is partially owned by Singapore Airlines and government investment arm Temasek Holdings.

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Infrastructure

Jasa Marga readies Rp 15t to build toll roads outside Java
The Jakarta Post - 31/01/2012

State-run toll road operator PT Jasa Marga Tbk. (JSMR) plans to build toll roads outside Java with Rp 10 to Rp 15 trillion in funds to ease infrastructure bottlenecks after the passage of a land acquisition law, executives say.

Jasa Marga, which controls 73 percent of all toll roads operating in Indonesia, also sees doubling revenues in 2014 from this year’s Rp 5.4 trillion forecast, after 10 Java projects will become fully operational, having been worked on since 2010.

Jasa Marga has been working on 10 toll routes in Java with the lengths of 215 kilometers since 2010, taking up Rp 24 trillion in investment for a project that is expected to be fully operational in 2014.

“In the coming years, we will challenge ourselves to build toll roads outside Java,” Adityawarman, the company’s newly appointed president director who succeeded Frans Sunito as of Monday, told a press briefing.

Director of business development Abdul Hadi said the projects were yet to be decided but cited Medan–Binjai and Medan–Kualanamo as examples, as Jasa Marga would prioritize routes that are connected with existing toll roads and also those that have good business prospects.

Bad roads have disrupted goods and services distribution across the archipelago, resulting in high costs and longer traveling times. But the new land law is expected to ease procurement for public purposes and help solve infrastructure bottlenecks, Abdul Hadi said.

“We have a huge financial capability of between Rp 10 and Rp 15 trillion to build new routes outside of the ten that we are currently working on,” Jasa Marga’s finance director Reynaldi Hermansyah said.

Jasa Marga currently operates 544 km-long toll roads and eyes a further 750 km within the next three or four years. The company allocated Rp 7.7 trillion for capital expenditure this year, for construction spending mainly for its subsidiaries as part of the effort to expand its toll road network.

As for funding the company’s expenditures as well as investment plans, 30 percent would come from Jasa Marga’s internal cash and the remaining 70 percent would be from debt, both bank loans and bond issuance. In 2010, Jasa Marga raised Rp 1.5 trillion from the bond market.

“We don’t have the necessity to issue bonds for refinancing, but if the moment is good, for instance if yield drops, we will assess such opportunities,” Reynaldi said. “The philosophy is to take bank loans in the first place and then issue bonds for refinancing.”

Jasa Marga saw 2011 net profits growing by double digits from Rp 1.19 trillion in 2010, as revenues grew almost 10 percent to Rp 4.8 trillion, he added, without disclosing exact figures. Vehicles using the company’s toll road network increased by 4 to 5 percent to more than 1 billion.

As for this year, Jasa Marga eyed another 4 to 5 percent increase in traffic, which would drive up revenues by 12.5 percent to Rp 5.4 trillion in 2012, according to Reynaldi.

Jasa Marga’s market value was Rp 28.73 trillion on Monday, with it trading at Rp 4,225 a piece, having risen 45 percent in the past year.

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New Jasa Marga Chief Announces Java Estate Plan
Ivan Dasa Saputra. The Jakarta Globe, Jakarta - 30/01/2012

State toll road operator Jasa Marga’s new managing director has announced plans to build an industrial estate in Surabaya as part of a diversification plan.

The Jakarta-based company announced on Monday that Adityawarman, previously its director of operations, would replace Frans Sunito as its president director.

Adityawarman said the company planned to this year build an estate on a 200,000-hectare site in Surabaya, the nation’s second-biggest city, that will include satellite towns.

He said the company expected to clear 50,000 hectares of land in the first stage of the East Java project. The company has held discussions with state and private companies to build the industrial estate.

“If things run smoothly, we can start the construction of the estate this year,’’ Adityawarman said in Jakarta after a shareholders meeting.

Jasa Marga has set aside Rp 150 billion ($16.8 million) to finance its non-toll road business this year. The company has allocated Rp 7.7 trillion to capital expenditure for its toll road business this year. The company will seek external funding to finance the company’s business plans this year, Adityawarman said.

Jasa Marga has held talks with state housing company Pembangunan Perumahan and Surabaya Industrial Estate Rungkut to develop the project. SIER manages three estates: an eponymous site as well as the Sidoarjo Industrial Estate Berbek and the Pasuruan Industrial Estate Rembang.

Jasa Marga is also aiming to build two toll roads in Medan. The company is planning two toll road sections: the 20-kilometer Medan-Binjai line and the 18-kilometer Medan-Kuala Namu. Kuala Namu is an international airport located to the northeast of Medan.

“This project is part of efforts to boost infrastructure in Medan,’’ Abdul Hadi, the company’s director of operations, said after the shareholders meeting.

The Medan-Binjai line is estimated to cost Rp 1.2 trillion and the Medan-Kuala Namu Rp 1.5 trillion. Those two will be part of a 60-kilometer toll road estimated to cost Rp 4.5 trillion.

Indonesia is seeking to develop infrastructure projects to spur economic growth. President Susilo Bambang Yudhoyono has pledged to double spending on roads, seaports and airports to $150 billion to help achieve average economic growth of 6.6 percent through 2014.

Jasa Marga is currently involved in several projects including the Bogor Ring Road, the toll road linking Gempor and Pasuruan in East Java and the Semarang and Solo toll roads in Central Java.

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DKI Jakarta, World Bank Start Urgent Dredging Initiative
Dredging Today, 30/01/2012

The DKI Jakarta provincial government and the World Bank today announced the official launch of the Jakarta Urgent Mitigation Flood Project, also known as the Jakarta Urgent Dredging Initiative, which will help improve the operation and maintenance of Jakarta’s flood management system.

Specifically the project will rehabilitate sections of a number of major waterways in the city. About 67.5 km of 11 key channel sections and 65 hectares of four retention basins will be dredged to help restore their operating capacities. About 42 km of embankments will also be repaired and where necessary, mechanical equipment such as pumps and gates will be replaced or repaired.

Approximately 3.4 million cubic meters of sediment and 95,000 cubic meters of solid waste are expected to be dredged out of the waterways and basins.

Studies on Jakarta’s recurrent flood problem show that restoring the city’s waterways and basins back to its original design capacity is the most beneficial step in flood mitigation. Rehabilitation of waterways under the project will augment efforts already made by the Jakarta Government in reducing flood risks such as erecting sea walls and completion of the east flood canal.

Involuntary resettlement is expected at six out of the 15 project sites. Any unavoidable involuntary resettlement will adhere to a Resettlement Policy Framework prepared by the DKI Jakarta provincial government which is consistent with international best practices. People displaced by the project will be given access to adequate housing as stipulated by regulations.

“With the availability of funds, we now have progress to rehabilitate the Jakarta’s waterways. The various stakeholders involved in Jakarta’s flood management system must now start work to expedite implementation of the project,” said Jakarta Governor, Fauzi Bowo.

Funding for the five year project was approved by the World Bank Board of Executive Directors on 17 January 2012. The project will be financed by a loan worth US$139.64 million, while the Indonesian central government and DKI Jakarta provincial government will contribute an additional US$49.71 million.

“Now that the funds are secured, the World Bank is looking forward to take the next step in supporting the Jakarta Government to mitigate flood risks in the Indonesia capital,” said Stefan Koeberle, World Bank Country Director for Indonesia. He added, “The project will help improve Jakarta’s flood management system, in line with international standards for environmental and social safety.”
In addition to rehabilitating waterways, as part of the project the World Bank will also assist in providing technical assistance for project management, social safeguards and capacity building.

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