Indonesian credit rating agency Pefindo (Pemeringkat Efek Indonesia) says the value of issued debt paper in Indonesia may reach IDR 90 trillion (approx. USD $6.8 billion), up 34 percent from the IDR 67 trillion worth of debt paper that was issued in Indonesia last year. Debt paper involves bonds, sukuk (Islamic bonds), and medium term notes. So far this year, Pefindo has been tasked to rate up to IDR 44.1 trillion worth of debt paper, while debt paper that has been issued up to May totaled IDR 25 trillion (approx. USD $1.9 billion).
Salyadi Saputra, General Director of Pefindo, is optimistic that the issuance of debt paper in Indonesia will surge compared to last year supported by Bank Indonesia's lower interest rate environment. So far this year, the central bank has cut its key interest rate (BI rate) from 7.50 percent to 6.50 percent as the nation's inflation, current account deficit and rupiah rate have been relatively stable. A lower interest rate environment makes it more attractive for companies to issue debt paper to finance their expansion plans or settle existing debt obligations.
Some IDR 24.5 trillion - or about 55 percent of total issued debt paper so far this year (IDR 44.1 trillion) - has been issued by local banks and other financial institutions, while companies engaged in the property sector issued some IDR 5.7 trillion worth of debt paper and the infrastructure sector some IDR 3.6 trillion worth of bonds so far this year. Pefindo Director Saputra added that in the period June-September 2016 another 48 Indonesian companies are set to issue debt paper. Traditionally, Indonesia sees a peak in the issuance of corporate debt paper in the months June and December.
Debt paper has become an increasingly common instrument for Indonesian companies to collect new funds for further business expansion or to settle existing debt obligations. Of those companies that have a BBB rating, many are planning to issue bonds in the foreseeable future as investor demand for BBB rated bonds has increased even though they imply a much higher risk compared to AAA rated bonds (and therefore have to offer a higher return to investors).
Rising demand (and supply) for BBB rated companies' debt paper is also supported by Indonesia's Financial Services Authority's decision to allow local pension funds to invest in the BBB rated bonds. Meanwhile, the Financial Services Authority also instructed pension funds to invest at least 20 percent of their funds into government bonds (SUN). However, these government bonds carry lower yields compared to corporate bonds with a BBB rating.
In early June 2016 it was reported that Standard & Poor's (S&P), the most conservative among the world's top three credit rating agencies, kept Indonesia's sovereign debt rating at BB+ with a positive outlook (this is one notch below investment grade). Meanwhile, the other big credit rating agencies already upgraded Indonesia to the investment grade class in 2011 (Fitch Ratings) and 2012 (Moody's Investors Service).
Credit Rating Indonesia:
|Standard & Poor's