Snapshot BII report - 26 May 2015

Results: Government Conventional Bond Auction

Overview

Indonesian government conducted their conventional auctions yesterday and received incoming bids of Rp11.59 tn bids versus its target issuance of Rp10.00 tn or oversubscribed by 1.1x. However, DMO only awarded Rp7.20 tn bids for its 8mo, 9y and 19y bonds. Incoming bids were mostly clustered on the FR0070 (10y benchmark series). 8mo SPN was sold at a weighted average yield (WAY) of 6.60059%, 9y FR0070 at 8.19942% while 20y FR0068 was sold at 8.40755%. No bids were rejected during the auction. Bid-to-cover ratio during the auction came in at 1.27X – 1.81X. Incoming bids during the auction came in lower compared to previous conventional auction.

Incoming bids during several auction as well as yesterday’s auction remains dry. This occurs amid S&P raises Indonesia credit rating to positive outlook from stable and successful global sukuk issuance recently. We still believe that Indonesia bond market would continue remain under pressure and that the drying demand during auction as well as drying foreign flow would continue. However, we are still optimist that DMO would be able absorb more than 60% of 2015 total issuance target in 1H 15. Foreign incoming bids during the auction were noted Rp4.19 tn or 36.1% of total incoming bids. However, only Rp2.74 tn bid (38.0% of total awarded bids) were awarded to foreign investors.

Till the date of this report, Indonesian government has raised approx. Rp41.64 tn worth of debt through bond auction which represents 49.9% of the 2Q 15 target of Rp83.50 tn. On total, Indonesian government has raised approx. Rp248.2 tn worth of debt through domestic and global issuance which represent 54.9% 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 Rp17.93 tn per conventional auction (2 upcoming conventional auction in 2Q 15) to meet their target of Rp83.50 tn.