Snapshot BII Report - 07 July 2015

Results: Government Conventional Bond Auction

Overview

Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp26.42 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 2.6x. However, DMO only awarded Rp15.00 tn bids for its 3mo, 1y, 11y and 21y bonds. Incoming bids were mostly clustered on the FR0056 and FR0072 series. 3mo SPN was sold at a weighted average yield (WAY) of 6.20290%, 1y SPN at 6.88400%, 11y FR0056 at 8.11830% while 21y FR0072 was sold at 8.37414%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.14X – 3.04X.

We feel mixed on the result of the auction as we expected that incoming bids might be oversubscribed by 3x – 4x of the initial issuance target and expected that investor bids would be more clustered on the FR0072 series as DMO is introducing this series for the first time. FR0072 pays an 8.250% fixed rate coupon and is expected to be the upcoming 20y benchmark series. On the other hand, we are satisfied with the awarded WAY during the auction. Foreign incoming bids during the auction were noted Rp11.33 tn or 42.9% of total incoming bids. However, only Rp8.12 tn bid (54.1% of total awarded bids) were awarded to foreign investors. We see that higher foreign bids (42.9% vs YTD 30.3%) compared to domestic bidder might had occur due to domestic bidders may have started their Eid al Fitr holiday or avoiding a purchase due to higher July inflationary pressure expectation.

Till the date of this report, Indonesian government has raised approx. Rp15.00 tn worth of debt through bond auction which represents 23.8% of the 3Q 15 target of Rp63.00 tn. On total, Indonesian government has raised approx. Rp310.4 tn worth of debt through domestic and global issuance which represent 68.7% of this year target of Rp451.8 tn. Assuming that if Indonesia government issues Rp2.00 tn during every sukuk auction in 3Q 15 then the Government needs to issue Rp7.60 tn during every conventional auction (5 upcoming conventional auction in 3Q 15) to meet their target of Rp63.00 tn.