PLN Signs $950m Hedging Agreement Amid Volatility in Rupiah


APRIL 10, 2015

Jakarta. Perusahaan Listrik Negara, the state power utility, signed on Friday a US dollar hedging facility agreement worth $950 million with three state lenders in a move to shield the company against foreign exchange volatility.

Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia will provide the facilities. PLN will join a small number of other state-controlled companies that have hedged their foreign debts, such as Krakatau Steel and flag carrier Garuda Indonesia.

“[The hedge] is needed for our monthly expenses. We have high exposure to foreign exchange,” said Sofyan Basir, PLN’s president director.

The power utility spent some $600 million last year for the oil and gas needed to run its power plants and to service debt interests, said PLN finance director Sarwono Sudarto.

Sarwono said PLN’s outstanding debt in foreign currency was around $20 billion. PLN is seeking to raise around Rp 600 trillion ($46 billion) to build power plants to generate an additional 10,000 megawatts of electricity, and 40,000 kilometers of transmission network, as part of a government initiative to add 35,000 MW of power over the next five years.

“The lack of funding from local [lenders] means more funding comes from abroad,” Sofyan said.

Hedging is important to state-owned enterprises — especially for PLN and state oil and gas firm Pertamina, which combined account for around 30 percent of total corporate forex purchases — due to their dominance in domestic foreign trade, according to a statement from the Supreme Audit Agency (BPK).

Hedging will bring stability to the rupiah exchange rate and mitigate the company’s risk of greater losses, said Bank Indonesia Governor Agus Martowardojo.

“We hope it will be an example for other state-owned enterprises and private corporations to hedge and to continue applying good risk assessments,” Agus said.

Economist welcomed the agreement, but doubted that it would do much to reduce the rupiah volatility in the local market.

“State-owned enterprises have always bought foreign currency from state-owned lenders for debt payments or purchases in a precise schedule,” said Eric Alexander Sugandi, an economist at Standard Chartered Bank.

“[The agreement] might not have many effects on daily trade since it has a wild card, which is the market perception driven by better US data or a US Federal Reserve decision [on an anticipated US interest rate hike].”