AXA awaits RI reforms before investing

AXA awaits RI reforms before investing

HONG KONG (Dow Jones): Until Indonesia shows a commitment to improve bankruptcy laws and creditor protection, AXA Investment Managers, the investment arm of French insurance giant AXA S.A. (AXA), will refrain from putting more money into the country's assets, said a senior official at the company.

"As long as there isn't the political will to solve the problems of existing debt ... we're not ready to invest new funds in Indonesia," said Nadine Tremollieres, head of Fixed Income Emerging Markets, in a recent interview with Dow Jones Newswires in Paris.

It's no surprise AXA puts so much interest in Indonesian creditor protection issues. The company still carries a lot Indonesian assets on its books from investments made in the mid- 1990s. Some of those assets are currently trading at between 5 percent and 10 percent of face value.

"We inherited in our portfolios some Indonesian companies in default for which our hope of recovery in the past three years was equal to zero," she said.

So now, even if Indonesian bonds pay a spread of 900 basis points over U.S. Treasurys, they don't look all that attractive.

"We still remember what happened three years ago," she said.

Tremollieres reckons that other foreign investors feel the same way. Even the proposed US$$3.1 billion bond exchange by Indonesia's biggest issuer Asia Pulp & Paper won't change AXA's opinion about the country's will to restructure its debt.

APP's exchange offer "gives little hope in the sense that they are not tackling the problem," she said. "For the moment, they're trying to solve it to the detriment of their creditors. And that's not really acceptable."

APP's offer is still under review for approval at the U.S. Securities Exchange Commission. Whatever the outcome, AXA - as one of the creditors - will accept what is offered. But if APP doesn't perform any structural changes it will "reinforce our opinion not to invest more in that country," Tremollieres said.

Besides Indonesia, AXA is also very cautious about other southeast Asian countries like the Philippines, where shaky economies and political instability make investments too risky.

Turning to product sectors, Tremollieres said that AXA would likely stick to regular U.S. dollar denominated government bonds in most countries of the region.

In terms of currency, AXA has been in the process of reorganizing and reallocating its investments in Asia Pacific for the past year and a half to two years. The insurer is increasing its exposure to Hong Kong, Singapore and South Korea's local currency markets.

Hong Kong and Singapore could also offer some opportunities in terms of high-yield bonds. But the overall Asian high-yield market isn't likely to pick up any time soon, Tremollieres noted.

"Asia is still in a situation where you find (high) spreads on sovereign bonds, so seeking an extra 150 or 200 basis points of spread by taking a risk on a corporate rather than a sovereign" isn't worth it, she said.

Hong Kong and Singapore are different because sovereign bonds there offer very little yield. But South Korea, Malaysia and Thailand, let alone the Philippines and Indonesia, aren't ready for a high-yield market.

"The crisis is still in everyone's mind and isn't completely solved," Tremollieres said.