ADB to invest $140m in Indonesian infrastructure

Asian Development Bank, the multilateral development finance institution for Asian countries, will invest up to $140 million in the government-backed Indonesian Infrastructure Financing Facility (IIFF).

The investment comprises up to $40 million for a 20 percent stake in IIFF as well as a 25-year loan of up to $100 million to PT Sarana Multi Infrastruktur, an infrastructure holding company owned by the government. The company will re-lend the loan, which has a five year grace period, to IIFF as subordinated debt.

“IIFF will finance commercially viable infrastructure projects by offering long-term financing and by providing the intellectual capital needed to catalyze public private partnerships,“ Philip Erquiaga, director general of the bank’s private sector operations department, said in a statement.

IIFF aims to attract up to seven times more investment to the country’s infrastructure sector, from the private sector than there is currently. “By limiting its exposure to 20 percent of the cost of any project, IIFF is expected to finance up to $5.5 billion of projects in its first five years of operations,” Erquiaga added.

Infrastructure deficiencies are holding back economic growth and poverty reduction in Indonesia. Private investment in the asset class has been low since long-term financing from banks or through the capital markets have not been available due to the credit crunch, according to the bank.

Last week, the Indonesian government was reportedly planning to auction off approximately $35 billion of public private partnership projects in the next two years to private investors, in order to meet a shortfall in infrastructure financing.