Indonesian Firms Turn to Rights Offers For Fundraising

(Bloomberg) -- Indonesian publicly listed firms are turning their sights to rights offers and private share placements to generate fresh funds as debt funding becomes harder to come by due to the economic devastation from the coronavirus.

Companies including major oil and gas firm PT Medco Energi Internasional and automotive distributor PT Indomobil Sukses Internasional have a fund target of around 40 trillion rupiah ($2.8 billion) for the April-June period, the highest announced since the second quarter of 2017, according to data compiled by Bloomberg. That comes as the amount they’re raised from local currency bonds and loans has slumped to the lowest since 2015.

Conglomerate PT MNC Investama is shifting its funding strategy because “the Covid-19 pandemic has made us realize the importance of strong capital structure,” Hary Tanoesoedibjo, founder and chairman said in an interview Monday. “We want to rely more on capital than on debt.”

The virus is having a bigger impact on Indonesia than the Asian financial crisis more than two decades ago, according to President Joko Widodo, with the economy projected to contract this quarter. As the Southeast Asian nation’s banks are busy restructuring more than 650 trillion rupiah of loans affected by the pandemic, companies need to rely less on funding from bonds and loans.

The strategy of shifting toward rights issues isn’t without risks, though, as corporates dilute their share capital.

Already 18 companies are looking to raise funds either by preemptive or non-preemptive rights issuances from April 1 to June 25, according to data compiled by Bloomberg. A number of companies within the MNC Investama group have stated their plans to hold private placements, and other corporates planning rights issues are PT Bank Mayapada Internasional and PT Citra Marga Nusaphala Persada.

It’s hard for firms to generate capital from external sources, such as bank loans, right now, said Samsul Hidayat, executive director of the Indonesian Public Listed Companies Association. “Some companies may have been planning to expand operations for some time, but are lacking the funds under this situation and are tapping rights issues to cover the gap,” he said.

PT Bumi Serpong Damai has also pocketed fresh capital from a similar move, with the announcement this month that two of its biggest shareholders would inject 1.23 trillion rupiah to help finance the property developer’s business expansion.

The limited number of investors in the rupiah bond market is a constraint, said Hermawan Wijaya, a director at Bumi Serpong. “With equity, the usage of proceeds is more flexible and is usually to finance long-term projects or capital expenditure that cannot be financed by banks,” he said.

©2020 Bloomberg L.P.