Financing Innovation to Accelerate

Infrastructure Development in Indonesia

Kartika Wirjoatmodjo
CEO of PT Bank Mandiri (Persero) Tbk.
October 2018
Indonesia needs to invest approximately USD 1,231 Bn in
infrastructure until 2030 to support economic growth
2016-2030

Low-Growth Scenario High-Growth Scenario

Infrastructure Needs (USD Bn) Infrastructure Needs (USD Bn)

14,097
16,504

On Average:
4,811 USD 1,231 Bn 5,504

1,158 1,304

PRC India Indonesia PRC India Indonesia

Growth Forecast (%) Growth Forecast (%)

On Average:
5,5%
5.8 7.8
4.6 4.5
6.6 6.5

PRC India Indonesia PRC India Indonesia

Sources: Asian Development Bank, Bank Mandiri Office of Chief Economist 2

Govt. infrastructure spending increased significantly since 2015
Government Infrastructure Spending (IDR Trillion) 2018 Government Infrastructure Budget
410.7
388.3

256.1 269.1

145.5 155.9 154.7

114.2
86 Road 865 Km Bridge Railway
Toll 25 Km 8.67 km 620 km

Airport
2018 Infrastructure Spending by Type LRT
8 locations
Irrigation
23 km 781 km
(new/expansion)
2% 1%

Economics
Infrastructure
Social Infrastructure

Infrastructure
97% Support Electrification Ratio Flats Village Broadband 100 locations
95.2% 13,405 units BTS 380 locations
Source: Ministry of Finance 3
Bank loan to infrastructure projects is increasing rapidly with
moderately good quality.. 544
Bank Loan to Infrastructure Projects 452
Rp Tn CAGR 378
17,7% 317
277
251
224
178
155
121

Sources: Perpres 13/2010, LPI, dan GCI

Bank loan to logistics sector Bank loan to utilities sector

%
140 124.2 6.0 200.0 179.8 4.0
120
160.0
100
4.0
120.0

Rp. Tn
2.8
Rp. Tn

80
2.0

%
60 80.0 1.2
2.0
40 1.5
40.0
20
1.1 0.0 0.0
0 0.0

2010

2011

2012

2013

2014

2015

2016

2017
2010

2011

2012

2013

2014

2015

2016

2017

Debt (IDR Tn)-LHS NPL (%)-RHS Debt (IDR Tn)-LHS NPL (%)-RHS
Spec Mentions (%)-RHS Spec Mentions (%)-RHS
4
Sources: OJK, Bank Mandiri Office of Chief of Economist
..yet private investment and innovative financing are needed to
overcome high LDR and short-term TPF in the banking industry
Third-Party Funding Composition (%) LDR and Third-Party Fund
100.0% 20.0%
23 23 22.38 23.24 23.32 23.55 18.5% 92% 91% 90% 89%
80.0% 15.0%
45.99 44.67 44.52 60.0%75.5%
55 46 44.52 10.0%
9.4%
40.0% 7.3% 9.6% 6.9%
20.0% 5.0%
22 31 31.63 32.08 32.16 31.93
0.0% 0.0%
2001 2010 2015 2016 2017 Jul-18 2010 2015 2016 2017 Jul-18

Saving Time Deposit Demand Deposit LDR YoY TPF

Time Deposit Composition (%) Fx Deposit, FX Loan and FX LDR

8 9 11 12 12 10 60 100
4 9 11 12 12 12
19 96
50
31 25 27 29 31

(USB Bn)
92

(%)
40
88
69
51 53 30
49 46 47 84

20 80

Jan-12
Jun-12

Oct-15
Mar-16

Jan-17
Jun-17
May-15
Nov-12
Apr-13

Aug-16

Nov-17
Apr-18
Sep-13
Feb-14
Jul-14
Dec-14
2001 2010 2015 2016 2017 Jul-18

1 month 3 months 6 months 12 months FX Loans (USD Bn) [LHS] FX Deposits (USD Bn) [LHS]
5
Sources: OJK, Bank Mandiri Office of Chief Economist FX LDR (%) [RHS]
Bank Mandiri’s loan to infrastructure development comprises
23,4% of total loan..
June-18 TOTAL LIMIT 255,3T
23%
TOTAL ENDING BALANCE 165,8T YoY

10,6T 39,3T 24,1T 36,8T

Roads Transportation Oil, Gas, Electricity
Renewables

17,5T 9,5T 18,3T 9,6T

Telco Housing & Construction Others
Municipal Facilities
Source: Public Expose 1H 2018 6
..and together with other financial institutions and
stakeholders, we are in search of financing alternatives
Offering Structure Financing Instruments
Focus of Discussion with Case Study
Bank Loan and NCD (Negotiable Certificate of Deposits)

Limited (Private) Medium Term Notes (MTN)

Debt Global Medium Term Notes (GMTN)

Domestic Bonds
Public
1 Global Bonds (USD or Others)

Mezzanine Loan
Limited (Private)
Financing Convertible Bonds (CB)
Hybrid
Options
2 Limited Participation Mutual Fund (RDPT)

Public / Non-Public 3 Securitization (DINFRA, KIK EBA)

REITS / KIK DIRE

Limited (Private) Strategic Investors

Equity
Public IPO & Rights Issue 7
1 Case Study: WIKA Global IDR Bonds (“Komodo Bonds”)
One of the largest construction company in Indonesia successfully raised IDR 5,4 tn to finance
further expansion in infrastructure investment

Background WIKA PROFILE

Company Overview
Investment Limited internal WIKA divides its businesses into five segments. Forward is WIKA’s Strategy to obtain
Required financing all business that can be done in the future. Backward is WIKA’s Strategy to obtain all
business or company that supports WIKA’s Key competences.

Global IDR Bonds fulfills WIKA’s need for

 Alternative financing

GLOBAL IDR BONDS

Ba2 Issuer Rating (Moody’s)
BB Issue Rating (Fitch)
PT Wijaya Karya
LSE - SGX
IDR 12.5 tn orderbook IDR 1,2 tn profit IDR 45,6 tn asset IDR 42,4 tn new contracts IDR 106,6 tn order book

IDR 5.4 trillion 2.3x oversubscription Projects Example

7.70% senior notes
(“Komodo Bonds”) >60 accounts
due 2021 (3 years)
30 bps tightening from initial
Joint Lead Manager &
Bookrunner price guidance
100 reoffer price
January 2018 Balikpapan-Samarinda
LRT Jakarta Bendungan Paselloreng
Toll ROad
2 Case Study: RDPT Jasa Marga (1/2)
Leading toll-road company in Indonesia owns some of the best toll road sections, generating steady
streams of revenue on cash basis
Revenue Breakdown (1H18)
Others
Company Overview
Toll Revenue 9%
• Jasa Marga is a leading toll-road company in (APJT) 12%
Indonesia with 40 years of experience
• Owns 33 concession rights (1.527 km)
• IDR 30,3 tn market cap (June 2018) Toll Revenue
(13 Old
• Core Business
Segments)
− Toll-road construction 79%
− Toll-road Operation
− Toll-road Servicing
• Other Business:
Market Share
− Property (Rest areas and other
properties along toll-road corridors) By Length of Toll- By Transaction
Road Currently Volume
Project Example Operating
20%
• Jagorawi (59 km) 39%
• Medan-Kualanamu-Tebing Tinggi (61,7 km) 65%
• Surabaya-Gempol (49 km) 80%
• Nusa Dua-Ngurah Rai-Benoa (10 km)
2 Case Study: RDPT Jasa Marga (2/2)
With plenty of concession rights waiting to be developed quickly, Jasa Marga requires alternative
financing strategies, such as RDPT that uses debt/equity as underlying asset(s), to maintain its
capital structure
Background Transaction Structure

High leverage 4 JSMR will buyback the investment units

Total investment profile gradually in a period of 5 years with a
required until 2021 predetermined rate of return
Rp140T Limited internal Investor
financing

Originator
1
RDPT Equity will fulfill JSMR’s need Financial
for alternative financing Advisor
RDPT
 Improvement of leverage profile Beginning 40% Investment Mgr.
 New external funding source
Ending 60% 40% 2

SPC
Total Issuance
Beginning 20%
JSN NKJ JSB
Ending 0%

Phase I Phase II Toll Road
Status: Solo-Ngawi Ngawi- Semarang-
DONE Q4 2018 Subsidiaries 90,3 km Kertosono Batang
87,0 km 87,0 km 3

Total Issuance:
Rp3,000,000,000,000,-
3 Case Study Securitization: KIK EBA Jasa Marga
In addition to RDPT, KIK EBA can be another solution to recycle mature assets and use the proceeds
to finance new projects, while managing its leverage position
Underlying Asset: Jagorawi Toll Road FRBS : Future Revenues Backed Securities
Supporting Parties
Investment • Legal Counsel
Arranger Manager & • Tax & Financial Counsel
Custodian Bank • Rating Agency
• Auditor
Jasa Marga issue • others
Investment
2 Proceed from
instrument via 1 Subscription Investors:
asset-sale
private Fund EBA
Fixed Income
placement Holders
(Senior Class)
Distribution 4 Principal &
of assets Coupon
Future revenue Payment
(Rights to Toll Mezzanine
Road Revenues) (Junior Class) KIK EBA shall distribute returns
Asset collections
and/or principal to EBA Unit
and distributions
Section Jagorawi
Holders (investors)
3
Servicer
Shareholder Jasa Marga (100%)

Road length 59 km KIK-EBA Term Sheet (Selected) KIK-EBA Orderbook

Years of operation 1978
Term 5 years from issue date Bookbuilding
Rp5.1 tn
Concession period 2005–2044 Investment Return
8,4% Final Structure
11 Payment
Revenue 2016 IDR 693 billion Rp4.5 tn
Payment Quarterly
Equal Annual Amortization
Increase in toll fee Proceeds
Odd years Principal Payment (straight line 20% of initial
rate Rp1.85 tn
issuance)
Case Study PPP : Jakarta-Cikampek Elevated II Toll Road
PPP can accommodate private investments through supports from government in the form of incentives
and guarantees
Jakarta – Cikampek Elevated II Toll Road Indicative Project Structure

Debt (Bank Loan) Equity

70% 30%

Ministry of PPP
Public Agreement PT JJC
Toll User
Works Govt and SPV (BUJT) Toll Tariff
(via BPJT) Obligations

Budget Regress Guarantee

Mechanism Agreement Agreement

Co-Guarantee
Details Regress Agreement
Payment With Ministry
• Length: 36,4 km Ministry of of Finance
• Project Cost: USD 1,249 million Finance
• Financier: Syndication of bank on investment loan
• Indicative Government Support & Guarantee: Tariff Notes
• IIGF: Indonesia Infrastructure Guarantee Fund • JJC: Jasamarga Jalanlayang Cikampek (JV PT
adjustment risk and termination risk • BPJT: Badan Pengatur Jalan Tol Jasa Marga (Persero) Tbk dengan PT Ranggi
• Estimated Concession Period: 45 years • BUJT: Badan Usaha Jalan Tol Sugiron Perkasa)
Case Study : LRT Jabodebek (1/2)
PPP can accommodate private investments through supports from government in the form of incentives
and guarantees
Total Length 82 KM
Phase I (on progress)
1. Cawang – Cibubur
2. Cawang – Kuningan –
Dukuh Atas
3. Cawang – Bekasi Timur
Phase II (blm ada FS)
1. Dukuh Atas – Palmerah -
Senayan
2. Cibubur - Bogor
3. Palmerah – Grogol
LRT Jabodebek (Phase I)
Project cost= Rp 27.5 tn*
Infrastructure costs = Rp 22.2 tn; Facilities = Rp 3.9 tn; and
Maintenance facilities (Adhi karya) = Rp 1.4 tn.
Construction
First stage from 2017 to 2019.
Project stakeholders
Adhi Karya is the project contractor Adhi, paid by PT KAI
(by progress)
KAI is the operator to run and maintain the LRT. KAI is also
acting as a financial supporter for LRT infrastructure.
14,5 km
10,5 km Kemenkeu is the project guarantor providing guarantee for
18,5 km payment schemes and government budget allocation.
7,8 km Kemenhub is the government representative to provide
25,0 km budget allocation for subsidy and infrastructure financing;
5,7 km
to design technical criteria of the project; and to sign the
contract with Adhi Karya & KAI.
Case Study : LRT Jabodebek (2/2)
PPP can accommodate private investments through supports from government in the form of incentives
and guarantees
Financing Scheme

Financial Projection

1 Contractor
Government
assignment The Government 4A
guarantee
2 Cash Surplus
3
Infrastructure and
Concession, Jabodebek LRT facilities
PMN and development
subsidy assignment
Rental agreement for
maintenance facilities
(Balai Yasa/Depo)
Syndication
loan Creditor
(BANK/LKBB)
4B Ticket Revenue Non-Ticket Revenue Government Support/Subsidy
5 Bridging Loan Operational and Debt Service Cost Fixed Cost
Variable Cost Debt Service
Payment for Source: PWC
infrastructure 5
6 development by Joint Mandated Lead Arrangers and Bookrunners (JMLAB) and Creditors
KAI
BALAI
YASA/DAPOT

LRT facilities operator – Subsidiary company of

a unit under KAI Creditors

LRT infrastructure maintenance – KAI (Daop I)

Key Success Factor
Alternative financing requires the optimal structure that will both benefit the issuer, in regards to the
impact on capital structure and the costs related to the issuance, as well as the investors, in fulfilling
their investment appetite and willingness to pay.

Sponsor  Skills and experiences in relevant project(s)

Capability  Financial resources to inject equity and absorb cost overrun (if any)

 Financial feasibility vs economical feasibility

 Optimal risk management and/or risk sharing
Project  Other aspects includes:
Feasibility − Legal and Institutional
− Technical
− Environmental and Social
 Certainty on Regulation, Policy, and Permission.
 Incentives.
Government  Guarantees. Example for PPP: Land revolving fund, Tariff adjustment
Support  Others. Example for PPP: Project Development Facility, Viability Gap
Fund, Availability Payment

 Financial Advisor
Supporting  Legal Counsel
Parties  Auditor
 Others