Banker suggests new project financing scheme

Banker suggests new project financing scheme

JAKARTA (JP): A noted banker suggested yesterday that the
government create new instruments and mechanisms to enable
temporary foreign and domestic equity investors to participate in
financing investment projects.

Trenggono Purwosuprodjo, chairman of the Association of
Private National Banks (Perbanas), said that in the future,
investment projects would rely more on equity and debt financing
from temporary investors, such as pension funds, mutual funds and
venture capitalists.

"Since the government started launching economic reform
measures in the early 1990s, banks have become less of a
financing institution and more of an instrument to assess the
feasibility of a project," he told a seminar yesterday.

The seminar, held by the Investment Coordinating Board's Rukun
Sejahtera foundation, discussed investment strategies and
policies. The seminar was officially opened by State Minister of
Investment Sanyoto Sastrowardoyo.

Trenggono said investors should maintain a sound balance
between the amount of equity financing and debt financing they
used in a project in order to maintain the project's feasibility.

"Disregarding this (balance) will not only damage the
project's profitability but harm national interests as well
because it could reduce competitiveness," he said.

Trenggono acknowledged that long-term project financing was a
problem that many investors faced.

This often caused investors to inflate figures in their
investment applications in order to secure larger loans and gain
investment approvals, but these practices in turn could
jeopardize the viability of the project itself.

"For this reason a financing mechanism should be developed to
help investors get equity financing for their companies or
projects," he said.

Equity financing could come from mutual funds, venture capital
companies, insurance firms and pension funds, all of which have
long-term funds, he said.

"But an institution that wants to participate in equity
financing will have to conduct in-depth analysis of the project's
rate of return because its participation (in the project) will be
temporary," he said.

"Ways of divesting of these temporary investments include
public listing on the stock exchange or a private placement," he
said.

Trenggono said the government should develop new project
financing schemes to accommodate such cases because not only
would direct investments continue to increase, but portfolio
investments -- particularly from developed countries -- would
also grow rapidly.

He said sound methods of disseminating information to
potential investors was needed to support such project financing
schemes.

"Prospective investors will need information on the company or
project and its technical aspects, including the possibility of
funding by mutual funds and venture capitalists," he said.

Trenggono said that while banks would continue to be an
important source of project financing, it would be increasingly
difficult for investors to get loans from them because banks were
gradually tightening their credit requirements.

"The capital adequacy ratio -- or the amount of capital that a
bank must provide for every unit of credit it gives -- will be
gradually raised from the current 8 percent to 12 percent by
2001," he said.

Apart from that, he said, banks' funds came mostly from short-
term sources, thus they were more likely to opt for short-term
financing as well. (pwn)