Indonesian Bond Market_v1.3

7/27/2019 Indonesian Bond Market_v1.3

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INDONESIAN BOND MARKET

Group 5

Aditya Sharma (A051)

Anchit Verma (A060)Ankit Kandoi (A028)

Shivam Aggarwal (A002)

Shubham Dikshit (A014)

Swati Aggarwal (A003)

Yashaswi Priyadarshi (A043)


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INTRODUCTION

In Indonesia, according to Capital Market Law, clear definition of

bonds comprises of Promissory note, commercial paper, shares, bonds,evidences of indebtedness, participation units of collective investment

contracts, futures contracts related to securities, and all derivatives of

securities.

The Indonesian government bond forms vary from conventional and

retail government bonds to government Sukuk in several tenors. Corporate and/or Public Bonds include: a) Corporate Bond and

Medium-Term Note b) Corporate Sukuk c) Convertible Bonds

Municipal bonds are issued by the province or district government for

financing public utilities projects.

Though both government and corporate bonds are listed on the

Indonesia Stock Exchange (IDX), they are mostly traded Over-the-

Counter (OTC).

Islamic bonds, which are based on shariah principles, play a major

role in Indonesian capital markets.


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SIZE & COMPOSITION

OUTSTANDING AMOUNT(billion)

1Q12 1Q13

IDR US$ IDR US$

TOTAL 1,013,454 111 1,154,804 119

Government 858,644 94 958,369 98

Central Govt. Bond 760,580 83 861,515 88

Central Bank Bills 98,064 11 96,854 10

Corporate 154,810 17 196,435 20

GROWTH RATE (%)

1Q12 1Q13

q-o-q y-o-y q-o-q y-o-y

TOTAL 2.0 (1.6) 5.9 13.9

Government 1.4 (5.5) 6.2 11.6

Central Govt. Bond 5.1 12.7 5.0 13.3

Central Bank Bills (20.4) (58.0) 17.6 (1.2)Cor orate 5.3 27.8 4.8 26.9


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MARKET STRUCTURE


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INVESTORS BREAKUP

36.46%

32.97%

10.19%

5.29%

6.89%

7.79% 0.40%

Banks

Foreign Holders

InsuranceCompanies

Mutual Funds

Pension Funds

Others

Bank Indonesia


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MARKET PARTICIPANTS

Intermediaries

a) Banks IndonesiasBanking law and Capital markets law allows banks to act

as intermediaries in Government securities trading

b) Secur ities Companies

Act as broker-dealers, underwriters and investment managers after

approval from BAPEPAM-LK

Currently there are 146 security companies in Indonesia

Rating Agencies The BAPEPAM-LK licenses local rating agencies specialising in

Indonesian debt

The two local rating agencies are Credit Rating Indonesia and PT Kasnic

Credit Rating Indonesia


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MARKET INSTRUMENTS

Promissory notes issued to BI

Hedge bonds

Fixed rate bonds

Variable rate bonds

Government

Bonds

Conventional bonds and

sharia- compliant instrumentsCorporateBonds


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SPECIALBONDS : SUKUKS

Islamic bonds structured in such a way as to generate returns to

investors without infringing Islamic law

Most commonly used structures are sukuk-al-ijarah and sukuk-al-

mudharabah

In sukuk-al-ijarah the investor gets partial ownership of the asset

which is created out of the proceeds of the bond In sukuk-al-mudharabah one partner provides capital and the other

provides managerial skills. The first sharia bonds listed on IDX

issued by PT Indosat Tbk, using mudharabah contracts

In 2004, Sharia bonds using Ijarah contracts were issued

The passage of the Islamic Sharia Debt Bill in April 2008 allowed

the Govt. to issue Islamic bonds to fund their budget deficits


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ISSUANCE & OFFERINGOF GOVERNMENT BONDS

Authority to issue government securities (or SBN), consisting of

SUN and SBSN, lies with the government represented by the MOF

The MOF should consult with BI prior to executing the governmentsecurities issuance program every year

Conducted through auction, book building, and private placement in

the local or international primary markets

Each method is governed by a corresponding Finance Minister

Regulation


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ISSUANCE & OFFERINGOF

CORPORATE BONDSAND SUKUK

Structured Process consists of the following :

Submission of Registration Statement to Conduct Public Offering

Request for Amendment and/or Additional Information

Publication of Summary Prospectus, Prospectus, and Preliminary

Prospectus

Effectivity of Registration Statement (45 days from the date the completed

or modified Registration Statement is received by Bapepam-LK)

Publication of Revision of and/or Additional Summary Prospectus

Period of Public Offering, Allotment, and Report on the Result of Initial

Public Offering (execute public offering within 2 working days when theRegistration Statement becomes effective. The period of public offering is

at least 1 working day and a maximum of 5 working days)

Shelf Registration (to enable the issuer or public company with good

performance to make a public offering of debt securities and/or sukuk

within a period of time)


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PROCESSES EMPLOYEDFORPUBLIC OFFERING

Auction Auction is used for public offering of government securities. It is

conducted by entering competitive and/or non-competitive bidsduring a predetermined bidding period via a system provided by anagent who conducts the auction of SUN or SBSN. For government

bonds, participants in the auction are banks or securities companiesappointed by the Minister of Finance as primary dealers, which areentitled to several rights and obligations.

Book Building

Private Placement


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SECONDARY MARKETA VIEW

The Inter-Dealer Market Association for Government Securities(HIMDASUN) was created in March 2003 to increase the liquidity

of the secondary bond market by facilitating price information.

The secondary market for corporate bonds is underdeveloped in

Indonesia because bondholders usually hold their bonds untilmaturity.

The trading of corporate bonds is facilitated through IDXs FITS.


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PAYMENTOF INTEREST & REDEMPTION

Bank Indonesia as paying agent pays coupon by crediting banks thatholds government bonds.

Investors banks are pre-advised of incoming funds from BI, and are

required to make these funds available to investors on couponpayment date.

If bank account and Sub-Registry are at different institutions, the

funds are credited to the investors account on payment date, but the

investor may not be able to withdraw until the following day.

Coupon interest is paid quarterly or semiannually according to the

terms and conditions of the issued bonds.


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REOPENING ISSUES

Re-openings are the offering of new securities with the same termsand conditions as an existing issue.

They are used to increase the size of an outstanding issue.

A reopened bond has the same maturity date, security identifier, andcoupon rate as the original security.

The only difference is that they have a different issue date andusually, a different purchase price based on current market yields.

Procedures for purchasing reopened issues are the same aspurchasing a new issue.


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RegulatoryAgencies

Ministry ofFinance

BankIndonesia

Bapepam-LK

Self-RegulatoryOrganizations


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ROLES

MOF

Main body responsible for the administration of finances of the

central government and for all economic and financial matters

affecting the country.

Bank Indonesia

Responsible for maintaining the stability of the rupiah, monetary

policy, payment system, and regulating and supervising thebanking system.

Acts as the central depository for the settlement and safekeeping

of government bonds and the Certificate of Bank Indonesia.

Bapepam-LK To guide, regulate, and supervise daily the capital market under

Ministry of Finance

To ensure an orderly, fair and efficient capital market, as well as

to protect the interests of the investors and public


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ROLES

Self-Regulatory Organizations

Each regulates its own areas of operations and allregulations issued by the SRO are subject to Bapepam-LK approval.

IDX (Indonesian Stock Exchange) is a private-ownedlimited company, whose shareholders are local stock

broking firms.

KPEI ( Indonesian Clearing & Guarantee Corporation) isa limited company to provide clearing and settlement,guarantee services for stock exchange transactions, and

provide securities and borrowing. KSEI (Indonesian Central Securities Depositories) is a

depository and settlement institution and performsettlement operations in scripless form.


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INDONESIAN GOVT. BONDS TERM STRUCTURE

Data as per July 16th, 2013


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Indonesian Market Characteristics Indian Market

BB+ Credit Rating BBB-

Actual/Actual Day Count Convention 30E/360

IDR 1 million Min. Tender Amount Rs. 25,000

8.1297 10- year yield (18th July) 8.08

119 Size of LCY bond market(USD bn)

835

83:17 Government: Corporate 73:27

26 Bond Trading Volume (USD bn) 1,092

13.9% Growth Rate (Y-o-Y) 24.3%

COMPARATIVE ANALYSIS


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THANKYOU

Indonesian Bond Market_v1.3

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