00:00My first question is, what is the impact in terms of pullback in investments that you're seeing because of the
00:05Iran war?
00:06I mean, I think we have to look at that with the proper lens.
00:10When we look at it from the public investors, I mean, I think the market will definitely take a pause
00:15in trying to understand how the noise is built into the more longer-term signal.
00:21When we look at it from the private lens, especially from the Indonesia side of it,
00:30the recent event, the tragedy that continues to take place in the Middle East,
00:36will only accelerate some of the trends that we have seen,
00:41especially as it relates to around deglobalization and the creation of multiple worlds,
00:46which will have much more impact in how we look at investments in the medium term and the long term.
00:53But overall, I think we have to look at this with our heads up
00:57and understand that every structural change will bring benefit, disadvantage, advantage,
01:04and we just have to take it all on with a collaborative effort.
01:07It's certainly a very challenging environment right now.
01:10Also, at the same time, a couple of weeks ago, Fitch Ratings downgraded its outlook for the Indonesian market.
01:16How much impact does it have on your ability to attract foreign chemicals and negotiate valuations?
01:23I mean, I think that's something that we have to also evaluate as the government reacts and adjusts their fiscal
01:31policy.
01:31I think our government has provided a couple of quick responses to ensure that we maintain our fiscal discipline.
01:41Our monetary policy is also being adjusted in reaction with the global central bankers all around the world.
01:49I think synchronization between the fiscal, the monetary, and the behavior of the private sector will be very critical.
01:56Definitely, it's not an easy time.
01:58I don't want to be any central banker around the world at this point.
02:01But we just have to do what we can do.
02:05And obviously, it will require more time to explain that if we play our card right, specifically from Indonesia's point
02:14of view,
02:15if we can influence the behavior of someone's private sector, we can actually turn this around for our advantage.
02:22Indonesia is true, it is a net oil exporter, but it is, Indonesia is a net oil importer, but it
02:29is a net energy exporter.
02:32It is a net commodity exporter.
02:36That's all that could be for our benefit, right?
02:40Because I think at this point, everybody, sovereign private players, are going to try to go for more inward-looking
02:49creation of independence in energy,
02:52creation of independence in food, and the likes, right?
02:55So this collaboration will continue to be at the forefront of everybody.
03:01Yeah, but Fetch Ratings also specifically pointed out the creation of Danantara,
03:06which is the second sovereign wealth fund that blurred the fiscal boundary.
03:10How difficult is it then to separate INA's credit story from Danantara's credit story?
03:16I mean, I cannot speak much as it relates to Danantara.
03:20I am not coming from their point of view.
03:22But when we take a step back and understand why Danantara was created,
03:28it was created with the mindset of having more coordination and increasing efficiency of the state-owned enterprise.
03:36with the mindset that some of these financial gains can be utilized in a more effective manner, right?
03:45And obviously, when you want to look at that from Fitch's point of view,
03:49and you cannot look at it in a vacuum just by singling out Danantara,
03:53because keep in mind, they've only been there for a year, right?
03:57And we haven't really quite seen the transmission of the effectiveness of their ability to turn around this data enterprise,
04:07as well as some of the projects that they just start investing.
04:10And I think if you keep in mind our history,
04:13now we can say that we are comfortable in producing some of these profit, investments, collaboration,
04:18but it took us five years to get here.
04:21So your primary mandate has been to attract foreign investors as a co-investor into strategic sectors in Indonesia,
04:29including infrastructure, green energy, and the like.
04:32What are some of your biggest priorities now?
04:35I mean, when we look at these priorities, we always put it into two buckets.
04:40The immediate priorities, where investors are ready to come in,
04:43and the priorities of the sector that investors will have to take a longer-term view as scale is being
04:50created in the industry.
04:51I mean, for us, in the immediate term, digital and digital infrastructure comes into mind right away.
04:59We are at the early stage of creating the foundational layer for AI development,
05:07which it will be a sector that is supported by each of the sovereigns because they want to make sure
05:14sovereignty in data.
05:16When we look into the medium and longer term, the crisis that happened in the Middle East is also a
05:26strong reminder
05:26that we need to be able to diversify out of fossil, right?
05:30And that's when renewable energy, something that is already available in Indonesia's own backyard,
05:37I mean, I think there's an estimate out there, if we can fully harness all the renewable,
05:41we can get up to one terawatt of power, which is an enormous amount, right?
05:46But that is longer term because you need a scalable platform, you need a scalable grid to be able to
05:52power through the Indonesia,
05:53which is an archipelago by itself.
05:55That also presents a challenge.
05:57Speaking of the Middle East, I understand they have been, in the past few years,
06:00as your biggest source of foreign capital.
06:02Given the Iran conflict, are you looking to diversify or pursue other sources of foreign capital now?
06:08I wouldn't say diversify is the right word.
06:12Middle East will continue to be a very important partner of ours.
06:16I think our approach when picking our partners is always division of labor.
06:22So we will provide the local expertise with the expectation that our partners will provide the capital,
06:31will provide some of the know-how.
06:33So we are quite agnostic when it comes to the partner selection.
06:38I do strongly believe the conflict will be resolved at one point.
06:43And what is most important for us is how do we collaborate, how do we help each other once that
06:49conflict is resolved,
06:51how do we rebuild, and how do we get back to where we want it to be in a more
06:56harmonious society?
06:57Chris, you come from a private credit background, and I know when you joined INA,
07:01you were talking about how INA can really play a role in that gap where banks don't fulfill and where
07:07bond markets are closed.
07:08So I wonder how your private credit portfolio has been performing so far,
07:13especially given we have seen a lot of scares in that sector.
07:16Man, I think that's a very good question, and I'm glad you brought it up, right?
07:21Because private credit, for me, is a word that has been relatively oversimplified.
07:26But let me first address on why private credit is not really high on my radar risk from where I'm
07:34sitting.
07:35Private credit in Asia is a product that comes in, that was created because there's an actual need.
07:43It was meant to complement the existing capital provider, the banks, the bond market, and the likes.
07:49While private credit in the developed market are designed more to compete with them
07:53because of the regulatory capital constraint from the banks.
07:57So the genesis why it existed was already different, right?
08:02There's more natural need for private credit in Asia.
08:04The second part is, unlike some of the financial crisis that we have seen,
08:09I do not see private credit in Asia and private credit in the West have the contagion effect.
08:18Right.
08:18So it's going to be relatively more contained.
08:21So you don't really see the systemic risk becoming something that will take the front and center.
08:29And now, when you put it all together and start going to the numbers,
08:33when you look at the default rate of the high-yield market in some of the developed markets,
08:38the U.S., for example, maybe we'll refer back to 2008.
08:41We're starting to see default rate as high as 9%, 10%.
08:44That is worrying.
08:45Yeah.
08:46But right now, the default rate is around 2% or 3% at most.
08:50The issue here is not so much the underlying credit itself.
08:54It's more the redemption, the liquidity issue that is being created by the investor of the product.
09:00So not so much an underlying problem of the asset class itself.
09:04Right.
09:04So there's still a bit of a fear there.
09:07There is a bit of fear, but I think this is a good fear.
09:09That is, now the private credit is taking more of a phase where it goes back to discipline itself.
09:18Maybe a little bit less on the Covenant Lite kind of product.
09:22More thoughts in terms of the investor base and the pipes.
09:26Just a quick question.
09:27Given the rupiah has been under a lot of pressure, how are you hedging that currency risk?
09:32And does it change the sort of deal that you're pursuing?
09:34No, I mean, for us, when we look at private credit, given the tenor is shorter, unlike the seven plus
09:43nine years, we don't really take hedges.
09:45A lot of our private credit investments are denominated in hard currencies, U.S. dollar, Singapore dollar, or Australian dollar.
09:53Not because we have preference for that.
09:56It's because every investment that we have, we need to do it with co-investment.
10:00And our co-investors and private credit typically plays in the hard currency.
10:05Eventually, I think we will develop an IDR currency, private credit, but for the time being, mostly in hard currency.
10:12Now, when we look at the underlying risk, we typically pick companies that actually have growth prospects, as well as
10:20a bit of a natural hedge as it relates to the hard currencies.
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