Q: What makes up WanaArtha Life’s infrastructure portfolio?
WanaArtha Life’s infrastructure portfolio represents about one-third of our total invested assets – about $391 million as of February 2017 – consisting of both bonds and stocks. Almost 60 percent of it is allocated to government bonds which are issued to fund domestic projects, while the remaining is made up of equity and bond holdings in corporations in the infrastructure sector. These companies mainly operate in housing development, healthcare, toll roads and construction services.
In terms of geographical remit, all our investment allocation is deployed within Indonesia, mostly in the western part of Java.
Q: Is domestic infrastructure risky?
The majority of our infrastructure-related portfolio goes to government bonds, for which the main risk is sovereign. The remaining 40 percent is a combination of stocks and bonds. We are very selective in choosing equities, which are mostly blue-chip stocks, and all the bonds we invest in are issued by state-owned enterprises. In addition, Indonesia is a growing market, focused on infrastructure development to maintain this momentum. From an investment perspective, therefore, the risk is relatively low.
Q: What is the appetite among Indonesian insurers for infrastructure? And what kind of returns are you targeting?
The appetite of insurers – including foreign ones – for infrastructure investment is quite low. They tend to be risk-averse and are reluctant to invest in greenfield projects, which are generally perceived as being riskier. They prefer brownfield projects, where risks are easier to assess.
WanaArtha Life has had experience investing in greenfield projects. In 2011, we invested in the development of a satellite city, Citra Maja Raya, in Indonesia’s Banten province, which has since delivered more than a fivefold return. Because of that positive experience, we believe the project will offer promising prospect after it has become brownfield. To sustain the momentum and further realise its potential, our goal is to find investors that are willing to co-invest in the project.
Currently, the return on 10-year Indonesian government bonds is 7 percent, while the returns on bonds from infrastructure companies vary considerably, due to different ratings.
Q: How do you view the government’s policies for infrastructure, like the PINA programme, which allows pensions to invest in domestic projects?
The pension industry has the same long-term investment horizon as life insurers, but the challenge for most pension funds in Indonesia is that they don’t have the expertise to analyse and evaluate infrastructure projects. Pension funds typically invest indirectly, through government bonds or by investing in state-owned enterprises in the infrastructure sector.
Q: What are the biggest hurdles to private investment in ASEAN infrastructure?
The greatest challenges for private investors in the region’s infrastructure projects are government regulation – getting the right regulatory settings, as well as ensuring regulatory certainty for long-term investment – transparency and the accessibility of information about projects and their financing.
Q: What needs to be done to help boost private sector participation?
Insurance regulation across ASEAN should be reformed to incentivise infrastructure investment. It is crucial that this is done at the national level, as well as being coordinated across all of ASEAN. When the right incentives are in place, the private sector will be able and willing to play a much bigger role in supporting infrastructure development.