Moody's: Paiton Energy-linked US$ notes issuance raises project bond prospects in Asia

(Singapore, August 08, 2017) -- Moody's Investors Service says the issuance of bonds by Minejesa Capital BV (Minejesa Capital, Baa3 stable) -- and which are unconditionally and irrevocably guaranteed by Paiton Energy (P.T.) (Paiton Energy) -- may indicate a significant development for the financing of infrastructure projects in Asia. Paiton Energy is the second largest independent power producer in Indonesia by installed capacity.

On 25 July, Moody's assigned a Baa3 rating - with stable outlook - to Minejesa Capital's USD backed senior secured notes. Yesterday, the company priced $2.0 billion of notes, as follows:
$1.2 billion 4.625% notes maturing in 2030
$800 million 5.625% notes maturing in 2037

"This debt issuance marks the return of Asian project bonds raised in the offshore debt capital markets after many years of absence," says Terry Fanous, Moody's Managing Director for Project & Infrastructure Finance in Asia Pacific.

"So far, project finance in Asia has been predominantly provided by banks, which will continue to play a key role in this sector over the foreseeable future, but a broader approach will help raise private sector-debt capacity," adds Fanous.

Moody's points out that institutional funds are an especially important fresh source of capital, because bank limits on lending to individual countries, sectors or borrowers, could over time restrict their ability to increase funding to the sector.

The diversification of funding sources for Asian infrastructure project finance augurs well for the sector, given the huge infrastructure requirements apparent in the region.

Estimates from the Asian Development Bank show that Asia will need to invest approximately $1.7 trillion a year in infrastructure during 2016-2030, representing 5.9% of the region's projected gross domestic product.

Moody's points out that such a large investment will require diverse funding sources.

"The Paiton Energy-linked bonds have credit attributes that support its investment grade rating profile, including stable and visible cash flow, resilience to various downside scenarios, a solid operating track record, an investment grade-rated offtaker, and experienced and committed sponsors," adds Ray Tay, a Moody's Vice President and Senior Credit Officer.

"Furthermore, the presence of a pass-through mechanism for exchange rate volatility, as is the case for Paiton Energy, is essential in mitigating the foreign-exchange risks associated with offshore debt issuance," adds Tay.

"Generally, the infrastructure project finance sector has attributes which are suited to the strategic objectives of institutional investors, such as its capacity of offering investment opportunities with long asset lives that match their long-dated liabilities," adds Tay.

Moody's points out that developing a pipeline of investable projects, such as in the case of Paiton Energy, will support the future deployment of institutional capital in Asia.

"The development of a robust pipeline of investable projects will encourage further participation by institutional debt investors, attracting more private capital to meet Asia's infrastructure needs," says Tay.

In certain less-developed jurisdictions, multi-lateral development banks (MDBs) can play a crucial role in catalyzing private capital for infrastructure investment. Specifically, MDBs can offer -- in addition to direct funding and providing credit enhancement -- policy guidance and technical assistance, including support for project separation.

MDBs can also facilitate coordination between development banks, other public-sector entities, and private-sector entities.