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)