Snapshot BII Report - 10 June 2015

Results: Government Conventional Bond Auction

Overview

Indonesian government conducted their conventional auctions today and received incoming bids of Rp25.28 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 2.5x. However, DMO only awarded Rp15.00 tn bids for its 3mo, 1y, 5y and 5y bonds. Incoming bids were mostly clustered on the long end tenors (FR0053 and FR0071). 3mo SPN was sold at a weighted average yield (WAY) of 6.31820%, 1y SPN at 6.93000%, 5y FR0053 at 8.59083% while 15y FR0071 was sold at 8.87774%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.43X – 2.19X.

Heavy incoming bids in our view occurred during the auction came in as a result of recent higher yield which we believe is above the fair market price at current point making Indonesia bonds seems cheaper to investors. Foreign incoming bids during the auction were noted Rp8.43 tn or 33.3% of total incoming bids. However, only Rp5.26 tn bid (33.3% of total awarded bids) were awarded to foreign investors. This means that two third of the bids came from local bidders. We suspect an aggressive buy might have occurred at the secondary market by investor or bidder that fails to win during the auction. However, we might see a profit taking occurring during today’s trading noting down that world bond yield continue to incline.

Till the date of this report, Indonesian government has raised approx. Rp58.33 tn worth of debt through bond auction which represents 69.9% of the 2Q 15 target of Rp83.50 tn. On total, Indonesian government has raised approx. Rp264.9 tn worth of debt through domestic and global issuance which represent 58.6% of this year target of Rp451.8 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 2Q 15 then the Government needs to issue Rp21.17 tn during the final conventional auction (1 upcoming conventional auction in 2Q 15) to meet their target of Rp83.50 tn.