Indonesia’s newly established sovereign wealth fund Danantara has received enough pledges from the nation’s wealthiest tycoons for its plan to issue 50 trillion rupiah ($3 billion) of so-called patriot bonds, people familiar with the matter said.
Between 40 and 50 investors will participate in the offering with some committing 3 trillion rupiah each, according to the people, who asked not to be identified as the talks are private.
The tycoons no doubt understand the importance the fund attaches to the deal. Danantara said in August that “our business leaders trade short-term gains for a lasting legacy: building our nation.” That refers to an oddity of the offering: the fund is asking investors to buy the notes despite the coupons being less than prevailing market levels. The five- and seven- year securities would carry a 2% coupon, less than half of government securities which yield over 5%.
The fundraising comes amid a broader push by President Prabowo Subianto to rein in Indonesia’s billionaires and address rising inequality that sparked riots in August. The president expects Indonesia’s richest families to contribute more to the country at a time when he’s seeking to ramp up programs offering free meals and low-cost housing, Bloomberg has previously reported.
The debt offering is a major test after the establishment earlier this year of Danantara, which Prabowo intends to play a key role in his goal to boost the economy to 8% growth levels last posted in the mid-1990s. The fund has said it has $1 trillion in assets under management and oversees nearly 900 state firms, which would put it among the world’s largest sovereign wealth funds.
The tycoons will likely use their own cash to pay for the bonds for now, but some are seeking loans from state-owned banks PT Bank Mandiri and PT Bank Negara Indonesia to help ultimately fund their purchases, the people said. They would likely need to pay over 6% in interest for any such loans, though talks are preliminary and details could change, they added.
The fund has been seeking to issue the debt on Oct. 1, people briefed on the plan said in August. But the issuance could potentially come later as the fund goes through the process of obtaining approval from the financial services authority to price a bond of this size in one go, some people familiar with the latest situation said.
There was no immediate reply from Danantara to an email seeking comment about the patriot bond plans.
Borrowers in Indonesia have a number of requirements that they need to fulfill before issuing notes, including preparing prospectuses and obtaining credit ratings if they wish to have the issuance rated. Danantara Investment Management, the investment arm of the fund, obtained its first ratings from Fitch on Sept. 22.
Local dailies Kontan and Bisnis Indonesia earlier reported that Danantara had gotten commitments for the offering, without specifying the source of the information.