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Indonesian contractor eyes up to $400m from Komodo bonds

Wijaya Karya's issuance may fund Jakarta-Bandung railway

Indonesian President Joko Widodo, center, inspects a model of the high-speed train which will connect the capital city of Jakarta to the country's fourth largest city, Bandung, during a groundbreaking ceremony for the construction of its railway in Cikalong Wetan, West Java, Indonesia in January 2017.

JAKARTA -- Indonesian state-owned contractor Wijaya Karya on Monday said it plans to raise up to $400 million from the overseas issuance of rupiah-denominated bonds, dubbed Komodo bonds, to help fund President Joko Widodo's ambitious infrastructure drive.

In a stock exchange filing, the company said it will start a roadshow on Tuesday to test market appetite. The proceeds will be used to "fund long-term projects, procure land, buy minority stakes in a company, and refinancing debt," among other plans, it said.

State-owned companies are taking a greater role in infrastructure development under Widodo, who has promised to address the massive shortage of roads, trains, ports and more in the country. With constraints in the state budget, state-owned contractors have been tasked with funding the projects. Wijaya Karya owns an indirect stake in a joint venture between Chinese and Indonesian state-owned enterprises building the Jakarta-Bandung high-speed railway, which is estimated to cost more than $5 billion.

Under fire from some economists over their ballooning debt, the government has been seeking to diversify the SOEs' funding sources. Komodo bonds -- named after the Komodo dragon, a species of large lizard native to Indonesia -- offer high yields for investors, while reducing some of the currency risk for the issuer compared with a U.S. dollar-denominated bond.

Wijaya Karya will be the second issuer of Komodo bonds. State-owned toll road operator Jasa Marga made its maiden issuance in December, raising four trillion rupiah ($320 million) from bonds with a three-year maturity. That issuance was more than four times oversubscribed, according to the company, and about 45% of the notes was allocated to U.S. and European investors.

Moody's Investors Service on Monday assigned a Ba2, or "junk," rating on Wijaya Karya's proposed bonds, with a stable outlook. The company "will benefit from Indonesian government initiatives to accelerate infrastructure development in the country," the credit rating agency said, but added a word of caution about the increase in its "sizeable capital expenditure and investment plans."

The issuance will further test market appetite as central banks in the U.S. and Europe are expected to tighten monetary policy. Maintaining investor interest will be key ahead of a larger issuance planned by PLN, the state-owned electricity company, which reportedly said that it aimed to raise up to $2 billion from Komodo bonds.

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