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Indonesia can support infrastructure plans by Islamic finance

Published: 10/09/2012 07:55:00 PM GMT
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Jakarta: Indonesia’s all infrastructure plans can be materialized if the country relies on Islamic finance and takes its support to successfully finish its all infrastructure building plans.

By Farhan Iqbal


Jakarta: Indonesia’s all infrastructure plans can be materialized if the country relies on Islamic finance and takes its support to successfully finish its all infrastructure building plans.

This was revealed in a report recently issued by Standard & Poor's saying that Indonesia can utilize the potential of Islamic finance to fulfill its ambitious infrastructure plans.

The report highlighted that the poor state of infrastructure is hindering the growth of Southeast Asia’s largest economy, while noting that the government is planning to spend more than $200 billion through 2014 to upgrade and expand infrastructure.

It also noted that most infrastructure projects are backed by the private sector while the government is considering various financing alternatives to fund the rest.

S&P credit analyst, Allan Redimerio, stated, “We believe Indonesia can emulate Malaysia's success thus far in utilizing Islamic finance for infrastructure development. This is due to Indonesia's large infrastructure development needs, the government’s willingness to attract private capital to fund these investments, and the rising demand for investable assets of a growing domestic Islamic finance market.”

Shares in Indonesia’s Bumi Resources, Asia’s biggest thermal coal exporter, fell more than 15 percent to a three-year low at one point earlier this week after the company reported a net loss for the first half of the year.

Bumi suffered a net loss of $322.1 million in the January-June period, compared with a restated net profit of $231.7 million in the same period last year, because of higher costs, lower coal prices and non-coal trading losses, the company reported on Sunday.

The company’s Indonesian shares, now down 65 percent so far this year, fell 5 percent on Monday, but trade was limited and lacked transparency due to technical problems that halted trading on Indonesia’s stock exchange.

Bumi, listed in London under a joint venture with financier Nat Rothschild and Indonesian investor Samin Tan, has also seen its London stock slump 60 percent this year, hit by boardroom disagreements and worries over debts.

Bumi sold 10 percent more coal, or 32.3 million tons, in the first half of the year, but at average prices that were 3.2 percent lower than in 2011. Thermal coal prices have been battered this year, hitting a two-year low in June.

“Questions now remain on the core profitability for Bumi, given the first half 2012 interest bill of $324 million outweighed $239 million of operating income...with prices likely to trend lower in the second half of 2012 and limited ability to lower the costs,” said Riaz Hyder at Macquarie in a report on Bumi.

The firm’s costs of leasing equipment more than doubled in the first half of this year, while maintenance costs rose nearly 15 percent. Overall operating expenses rose 48 percent.

Mining sector growth in Indonesia, the world’s largest exporter of the thermal coal used in power stations, has led to rising costs and wages at a time of softening global commodity demand.

Under these circumstances, Indonesia should go for Islamic finance to support its infrastructure plans as suggested by S&P, experts said.


Allan Redimerio, S&P credit analyst

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