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The latest series of (conventional) Indonesian Retail Bonds (in Indonesian: Obligasi Ritel Indonesia, or ORI) was poorly absorbed by Indonesian retail investors. According to the latest available data, only IDR 8.95 trillion (approx. USD $663 million) was invested in the ORI014 series that was on sale between 29 September and 19 October 2017.
Based on information from Bloomberg, Indonesia is now the most attractive country in Asia in terms of returns on US dollar-denominated corporate bonds as an improving domestic economy - and especially an upturn in the country's coal sector - is driving gains in Indonesia's US dollar-denominated corporate bonds.
There are several reasons why the number of corporate bond sales in Indonesia is still low compared to other Asian countries (even though we do detect a rising trend in Indonesia from year to year). Anup Kumar, senior fixed income analyst at Maybank Indonesia, said the number of corporate bonds sales in Indonesia is on the rise this year, but total outstanding bonds in Indonesia is considerably lower than in other Asian nations. What explains this situation?
According to a statement of Indonesia's Finance Ministry, Indonesia raised a total of 100 billion yen (approx. USD $901 million) from the issuance of three, five and seven-year Samurai bonds (yen-denominated bonds) on Wednesday (31/05). The issuance, Indonesia's first public sale of Samurai bonds, was led by Mizuho, Nomura and SMBC Nikko.
Despite the recent rating upgrade from Standard & Poor's, Indonesia's banking sector will not immediately issue bonds to enjoy (expected) higher demand and lower yields. Based on data from the Financial Services Authority (OJK), per March 2017, the value of bonds issued by Indonesian banks fell from IDR 93.22 trillion in December 2016 to IDR 90.25 trillion (approx. USD $6.8 billion) per March 2017.
More rupiah and foreign-denominated bonds are expected to be issued in Indonesia now credit rating agency Standard & Poor's (S&P) assigned investment grade status to Indonesia's sovereign rating (BBB-/stable outlook). Yields are expected to decline gradually, while the cost of funds become cheaper. Therefore, it now becomes more attractive for the Indonesian government and local companies (those that also have been assigned the investment grade rating) to issue bonds and collect "cheaper funds".
The central bank of Indonesia (Bank Indonesia) said the nation's foreign exchange reserves rose to USD $121.8 billion in late March 2017 from USD $119.9 billion in the preceding month. The increase was primarily attributed to proceeds from tax collection, state revenue from the oil & gas sector, the issuance of global bonds and the auction of Bank Indonesia foreign exchange bills.
Few foreign investors invest in Indonesia's corporate bonds. Foreigners currently only hold seven percent of total outstanding corporate bonds in Indonesia. Salyadi Saputra, President Director of Pemeringkat Efek Indonesia (Pefindo), said this figure is too low. Ideally, it should be between 20 - 30 percent. Moreover, the percentage share of Indonesian corporate bonds that are in foreign hands has fallen over the past year. On 1 January 2016 foreigners still held 7.29 percent of total outstanding corporate bonds in Indonesia.
The Finance Ministry of Indonesia is conducting a rupiah-denominated Government Debt Securities (SUN) auction on Tuesday (27/09). The auction opened at 10:00 am local Jakarta time and will close at 12:00 pm. The indicative target of the government is set at IDR 12 trillion (approx. USD $923 million), while the maximum target is set at IDR 18 trillion (approx. USD $1.4 billion). Proceeds are used to finance the Revised 2016 State Budget.
Asian markets performed well today on an upbeat US jobs report. Indonesia's benchmark Jakarta Composite Index hit a 13-month high at 5,069.02 points after strengthening 1.97 percent on Monday (11/07), led by financials and consumer staples. In June the US economy added 287,000 jobs, beating forecasts and signalling that the US economy remains reasonably healthy. However, another Fed Funds Rate hike is still believed to be off the table and therefore investors started the week with strong appetite for riskier assets.
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The government of Indonesia plans to sell another series of sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). The offering period is planned for 4 February - 2 March 2017. However, Suminto, Islamic Financing Director at the Budget Financing and Risk Management Office within Indonesia's Finance Ministry, did not inform about the indicative target for this issuance. He only informed local media that the target of the bond issuance will be in line with the government's financing needs and existing market conditions.
The Indonesian government sold €3 billion worth of euro-denominated bonds (Surat Utang Negara, or SUN) on Tuesday (07/06) consisting of €1.5 billion of 7-year tenure bonds with a yield of 2.772 percent and €1.5 billion of 12-year tenure bonds with a yield of 3.906 percent. Combined, the issuance was oversubscribed 1.79 times with a total book order for the dual-trance bonds at €8.36 billion. Robert Pakpahan, Director General of Financing and Risk Management at Indonesia's Finance Ministry, said funds will be used to finance the 2016 budget deficit, which is expected to widen to 2.48 percent of GDP.
One of Indonesia's long standing companies - and also one of the most controversial ones in Indonesia - Bakrie & Brothers plans to offer part of its shares to creditors Mitsubishi Corporation, Glencore International, and Eurofa Capital Investment in a debt for equity swap. This plan is part of the company's efforts to restructure USD $453 million worth of debt through mandatory convertible bonds. Indra Ginting, Chief Investor Relation Officer at Bakrie & Brothers, confirmed the company owes Mitsubishi USD $150 million, Glencore USD $200 million, and Eurofa Capital USD $103 million.
In the past two weeks, two of the big international credit rating agencies released new reports about Indonesia's fiscal situation. Both agencies affirmed Indonesia's sovereign debt rating: Fitch Ratings kept Indonesia at BBB-/stable (investment grade class) and Standard & Poor's (S&P) maintained Indonesia at BB+/positive (highest junk level, one notch below investment grade). S&P's decision to keep Indonesia within the junk level category was met with disappointment among investors and Indonesian government officials but perhaps not that surprisingly.
There is strong demand for Indonesia's sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). Since the launch of series SR-008 on Friday (19/02), a number of sales agents have run out of quota. These financial institutions now request additional quota from the government. The three year SR-008 series carries a fixed coupon of 8.3 percent per year (and is tradable on the secondary market). The government of Indonesia targets to collect up to IDR 30 trillion (approx. USD $2.2 billion) in funds from the issuance. Sukri bonds are only available to Indonesian citizens.
Some concern has been raised about the inflow of foreign 'hot money' into Indonesia amid accomodative monetary policies conducted by central banks of the Eurozone and Japan (the latter implemented negative interest rates in late-January). The world's carry traders are now seeking cheap funds in advanced economies and invest these funds in assets that have attractive returns such as Indonesian bonds and stocks. Indonesia's benchmark interest rate (BI rate) is still relatively high at 7.0 percent after a 25 basis points cut at Bank Indonesia's February 2016 policy meeting.
American financial services company Standard & Poor's warns that defaults by Indonesian companies are a serious threat over the next 18 months given their eroded balance sheets amid the country's current economic slowdown. The warning came after Indonesian mobile phone retailer Trikomsel Oke announced plans to restructure about USD $155 million worth of debt as it may not be capable to meet obligations indefinitely.
Indonesian food company Tiga Pilar Sejahtera, a market leader in the country’s dry vermicelli and dry noodles segments, considers to acquire two food companies in Malaysia and Vietnam in a move to expand business beyond the Indonesian borders. Sjambiri Lioe, Finance Director at Tiga Pilar Sejahtera, said that the company (which is listed under ticker symbol AISA) has set aside a total of USD $80 million for this acquisition. He refrained from mentioning the names of the targeted Asian companies.
In an attempt to strengthen the domestic investor base and to meet financing of the Revised 2014 State Budget (APBN-P 2014), the government offers Indonesian Retail Government Bonds (Obligasi Negara Ritel Indonesia, abbreviated ORI) again. This is the 11th time, the government issues ORI bonds since its first launch in 2006. The ORI series ORI011 is offered in the period 1-16 October 2014 with a coupon rate of 8.5 percent and a tenor of three years. The minimum allowed order is IDR 5 million and the maximum IDR 3 billion per individual.
US Federal Reserve Chairwoman Janet Yellen reminded global investors to prepare for a sooner-than-expected US interest rate hike (Fed Funds Rate, FFR) provided that the economy of the USA - the world’s largest economy - continues its improving trend. In fact, speculation has emerged that the FFR will be raised before the end of 2014 although Yellen stated more than once that the ‘close-to-zero’ interest rate environment would be maintained for a considerable period after the US bond-buying program (quantitative easing) has ended.
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