Government Debt Securities Management as of December 9, 2013 - - PDF document

Government Debt Securities Management as of December 9, 2013

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia

Ministry of Finance of the Republic of Indonesia

Outline 1. Government Securities Management and Financing Strategy 2. Government Debt Securities Market Performance & Statistics 3. Crisis Management Protocol & Bond Stabilization Framework

2

Government Securities Management and Financing Strategy

3

Strategi Umum Pengelolaan SUN 2013

General Strategy for Debt Financing 2014

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• 1. Prioritizing the issuance of domestic government securities to support market development and risk

management of debt portfolio

• 2. Issuing global bonds as complementary;
• 3. Determining debt instrument by taken into account of market need and investor base expansion need;
• 4. Issuing Retail Bond for market deepening and financial inclusion;
• 5. Performing active portfolio management Government securities through, among others, debt buybacks and

switches, including liability management for foreign currency Government Securities;

• 6. Expanding the scope of Bond Stabilization Framework and enhancing the market indicators of Crisis

Management Protocol (CMP) Government Securities in order to support the market stability;

• 7. Maintaining a negative net flow policy for foreign loans;
• 8. Strengthen the function of Investor Relations Unit, among others, through the proactive dissemination of

information, rapid and effective responses, and effective communication with investors and other stakeholders.

Supply

• Government

Debt Securities

• SUKUK

Demand

• Banks
• Foreigners
• Insurance

Company

• Mutual Fund
• Central Bank
• Pension Funds
• Securities

Company

• Retail Investor
• Domestic

Potential Investors

Government Securities Market Development Framework

Deep & Liquid Market

Sufficient Market Absorption & Efficient Price/Yield

Primary Market

• Activities:

Regular Issuance (Book building, Issuance, Private Placement)

• Infrastructure:

Auction System for onshore USD issuance:

• Debt Switch Program (Many to Many)
• Electronic Trading Platform (ETP) for Retail Govt. securities
• Hittable of PDs quotation

Secondary Market

• Activities:

Buyback, Debt switch, Securities Lending

• Infrastructure:

Buyback System, Primary Dealers, Selling Agent, Repo, Benchmark Yield Curve, Brokers/Dealers, Price Discovery Mechanism (IBPA, Reporting System)

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MARKET INFRASTRUCTURE

Regulation and Supervision

Financing Trend, 2004 – 2014

(trillion IDR) Notes: * Revised Budget 2013 ** Budget 2014

6

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2014** Govt Securities - net 6,9 22,6 36,0 57,2 85,9 99,5 91,1 119,9 159,7 231,8 205,1 Domestic Loan

• 0,4

0,6 0,8 0,5 1,0 External Loan - net (28,1) (10,3) (26,6) (26,6) (18,4) (12,4) (4,6) (17,8) (23,5) (16,9) (20,9) Others/Non-Debt - net 42,0 (1,2) 20,0 9,1 16,6 25,5 4,6 28,3 38,1 8,8 (9,8) Budget Defisit, % to GDP 1,1 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,4 1,7

1,1 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,4 1,7

(0,5)

• 0,5

1,0 1,5 2,0 2,5

• 50

50 100 150 200

Securities Financing Realization 2013

7 )* Including Accrued Interest Neto amounted IDR445,357 billion

• Govt. Securities Net amounted IDR224.7 trillion already moved to loan program

(Million IDR) Revised Budget 2013

Realization (ao December 6, 2013)

% Realization to Revised Budget 2013 Government Securities Maturing in 2013 96.980.835 85.394.084 88,05% Government Securities Net 224.702.157 235.780.361 104,93% Buyback 1.551.385 1.551.385 100,00% Issuance Need 2013* 323.234.377 323.171.187 )* 99,98% Government Debt Securities (GDS) 269.549.955 Domestic GDS 228.055.255

• Coupon GDS (Auction, Private Placement)

165.450.000

• Conventional T-Bills (Auction, Private Placement)

42.400.000

• Retail Bonds

20.205.255 International Bonds 41.494.700

• USD Global Bonds

39.228.000

• USD Domestic Bonds

2.266.700 Government Islamic Debt Securities 53.175.875 Domestic Government Islamic Debt Securities 35.937.875 Global Sukuk 17.238.000

[in IDR billion]

2014 Budget Financing

Budget % to GDP

• A. Total Revenue

1.667.140,8 16,07%

• 0,00%
• B. Total Expenditure

1.842.495,3 17,76%

• C. Primary Balance

(54.069,0)

• 0,52%
• D. Deficit

(175.354,5)

• 1,69%
• E. Financing

175.354,5 1,69%

• I. Non Debt Financing

(9.773,7)

• 0,09%
• II. Debt Financing

185.128,2 1,78%

• 1. Government Securities (Net)

205.068,8 1,98%

• 2. Foreign Loan (Net)

(20.903,6)

• 0,20%

+ Disbursement 39.132,7 0,38%

• Program Loan

3.900,0 0,04%

• Project Loan

35.232,7 0,34% + Subsidiary Loan Agreement (SLA) (1.226,3)

• 0,01%

+ Repayment (58.810,0)

• 0,57%
• 3. Domestic Loan (Net)

963,0 0,01% Assumptions :

• a. GDP (trillion IDR) (Y.o.Y)

10.376.006,3

• b. Growth (%)

6,0

• c. Inflation (%) y-o-y

5,5

• d. 3-month-SPN (%)

5,5

• e. IDR/USD (average)

10.500

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DOMESTIC:  Auction:

• 23 times of conventional securities auction
• 20 times of islamic securities auction

 Non-Auction

• Retail bonds, consist of ORI, Saving Bond

and Sukuk Retail.

Private Placement (SDHI)

INTERNATIONAL BOND  Issuance of International Bonds as complement to avoid crowding out in domestic market and provide benchmark for corporate issuance, consist of USD, YEN or EURO global bonds  Maximum issuance international bond 20% from target gross Issuing the Government Securities using Front Loading Strategy in the first semester

Government Securities Financing Gross (2014)

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Uraian Indicative Target

Govt Securities (neto) 205,069 Redemption 135,893 Cash Management 14,000 Buyback 3,000 Govt Securities (gross) 357,962 Domestic 80.5%

Auction 69.4% Retail (Convensional/Islamic) 10.5% Private Placement/Non Tradable 0.6%

Foreign 19.5%

Description

Issuing in domestic market will be prioritized Issuing in variety of tenor Issuing in international market with variety of currency and tenor Buyback/direct transaction, debt switch New initiatives:

• saving bonds issuance
• euro denominated global bond issuance under GMTN
• unguaranteed Samurai bonds issuance
• 1. Issuance:
• debt switch many to many
• staple bonds
• global bond liability management
• reopening SPN
• 2. Government Securities Liquidity

Enhancement:

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Government Debt Securities Operation Plan (2014)

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Government Debt Securities Transaction Plan (2014)

Domestic Auction

• IDR issuance
• Onshore USD issuance

International Bond Issuance

• Global bonds issuance (USD, Euro)
• Samurai bonds issuance (Yen)

Retail Bond Issuance

• Conventional retail (ORI)
• Saving bonds

Portfolio Management Transaction

• Buyback/direct transaction
• Debt switch (many to many & staple bonds)
• Liabilities management (USD)

Government Securities Performance

Primary Market Performance

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In the last auction, foreign participation reached 43%, much higher than the average foreign participation in Government Debt Sec. Auction in 2013 which is 36.93% of total incoming bids. Despite volatility in financial market since June 2013, incoming bids are still robust

24,60 53,98 48,73 95,57 189,46 136,18 198,23 315,91 393,41 430,59 435,04 11,71 23,57 22,54 39,30 70,78 66,06 79,20 101,90 138,85 152,77 207,85 11,92 10,42 13,97 10,14 10,01 11,86 10,04 7,57 5,96 5,30 8,49

3 6 9 12 15

• 100

200 300 400 500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 03-Des-13

Total Incoming Bid Total Bid Accepted Yield at Tenor 10 year (RHS)

[IDRTrillion] 48 32 45 39 32 38 52 31 30 32 32 50

10 20 30 40 50 60 2008 2009 2010 2011 2012 up to 3 Dec, 2013

Foreign Incoming Bids (%) Success Rate (%, RHS)

2,00 4,00 6,00 8,00 10,00 12,00 14,00 16,00 18,00 20,00 22,00

Apr'08 Jun'08 Agust'08 Okt'08 Des'08 Feb'09 Apr'09 Jun'09 Agust'09 Okt'09 Des'09 Feb'10 Apr'10 Jun'10 Agust'10 Okt'10 Des'10 Feb'11 Apr'11 Jun'11 Agust'11 Okt'11 Des'11 Feb'12 Apr'12 Jun'12 Agust'12 Okt'12 Des'12 Feb'13 Apr'13 Jun'13 Agust'13 Okt'13 Des'13

5Y 10Y 15Y 20Y

20 40 60 80

Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Aug-13

Average daily trading (IDR Trilion)

Secondary Market Performance

14 Up to Dec 6, 2013

Global Financial Crisis

Eurozone sovereign debt crisis

[In Percentage]

As of Dec 6, 2013

5,12 7,04 5,15 14,12 12,88

• 3,00

6,00 9,00 12,00 15,00 2008 2009 2010 2011 2012

Turn Over Govt Bond 10 Y

Activity in the domestic bond market increasing Yield of Benchmark Series trend to pick up Bid Ask Spread 10 Y Govt Bond Turn Over 10 Y Govt Bond

2.549 3.307 5.899 4.235 3.420 4.963 7.671 9.219 6.657 7.603 7.421 7.932 9.092 11.081 14.926 11.263 18.556 15.524 13.511 18.520

• 80

160 240 320 400 480

• 6.000

12.000 18.000 24.000

2005 2006 2007 2008 2009 2010 2011 2012 Jan '13 Feb '13 Mar '13 Apr '13 May '13 Juni '13 July 13 Aug 13 Sep 13 Okt 13 Nov 13 2 Dec 13

Volume (billion rupiah) - LHS Frequency - RHS

LCY 10 Year Government Bonds Latest Yield YTD Change (BP) MTD Change (BP)

HK 2.249 +165.1 +20.8 ID 8.787 +359.6 +12.4 JP 0.669

• 12.2

+6.4 KR 3.730 +57.0 +6.0 MY 4.105 +60.2 +2.9 PH 3.459

• 69.1

+4.0 SG 2.510 +121.0 +11.0 TH 4.082 +57.2

• 2.4

US 2.855 +109.8 +11.1 VN 9.200

• 100.0

+20.0

Yield SBN pada peer’s market

• Market Watch as of December 9, 2013
• Source: Asian Bonds Online

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Indonesia Gov’t bond yield post take highest increase among others in Asia region

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y10Y 15Y 20Y 30Y

6 Dec '13 29 Nov '13 6 Nov '13 9 Feb '12 23 Sep '11 27 Oct '08 13 Sep'05 [in percentage]

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Ownership of Tradable Domestic Government Securities

In IDR Trillion

During 2009 – 2013, domestic financial institutions are picking up in size, however growth of ownership from this institution still lower than foreign investors.

Banks 254,36 43,72% 217,27 33,88% 265,03 36,63% 299,66 36,73% 349,66 37,08% 322,35 32,76% 356,31 35,51% 381,81 37,92% Govt Institutions 22,50 3,87% 17,42 2,72% 7,84 1,08% 3,07 0,37% 25,17 2,67% 48,25 4,90% 30,53 3,04% 5,82 0,58% Non-Banks 304,89 52,41% 406,53 63,40% 450,75 62,29% 517,53 63,09% 568,04 60,25% 613,45 62,34% 616,50 61,44% 619,21 61,50% Mutual Funds 45,22 7,77% 51,16 7,98% 47,22 6,53% 43,19 5,27% 40,23 4,27% 41,08 4,17% 42,37 4,22% 42,14 4,19% Insurance Company 72,58 12,48% 79,30 12,37% 93,09 12,86% 83,42 10,17% 127,82 13,56% 128,48 13,06% 129,97 12,95% 130,87 13,00% Foreign Holders 108,00 18,56% 195,76 30,53% 222,86 30,80% 270,52 32,98% 294,14 31,20% 318,11 32,33% 324,20 32,31% 326,21 32,40% Pension Fund 37,50 6,45% 36,75 5,73% 34,39 4,75% 56,46 6,88% 38,59 4,09% 38,67 3,93% 39,67 3,95% 39,91 3,96% Securities Company 0,46 0,08% 0,13 0,02% 0,14 0,02% 0,30 0,04% 1,05 0,11% 0,82 0,08% 1,32 0,13% 1,21 0,12% Individual 21,41 2,27% 41,36 4,20% 32,52 3,24% 32,55 3,23% Others 41,12 7,07% 43,43 6,77% 53,05 7,33% 63,64 7,76% 44,81 4,75% 44,93 4,57% 46,45 4,63% 46,32 4,60% Total 581,75 100% 641,21 100% 723,61 100% 820,27 100% 942,86 100% 984,05 100% 1.003,34 100% 1.006,84 100% Dec-12 Dec-09 Dec-10 Dec-11 06-Dec-13 Nov-13 Oct-13 Sep-13

Foreign Investor Activity

Net Buyer (Seller) - Non Resident Foreign Ownership - Proportion by Tenor

[In IDR Trillion]

17

Foreign investors mostly dominated by real money long term investors

(1,49) (29,29) 1,69 (4,99) 8,06 13,11 (8,99) (2,27) 4,15 (4,37) (0,08) 10,13 (1,41) 7,83 9,35 19,52 0,68 2,68 8,44 (0,88) 17,97 4,22 (19,98) 2,81 (1,76) 10,13 23,98 6,08 2,01 (0,15) (0,10) (0,05) 0,00 0,05 0,10 (40,00) (30,00) (20,00) (10,00) 0,00 10,00 20,00 30,00

Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 6-Dec-13

Capital Inflows Capital inflows over total foreign holders 4% 10% 12% 13% 8% 6% 6% 5% 5% 8% 8% 3% 5% 6% 20% 18% 17% 17% 16% 13% 13% 22% 21% 25% 24% 28% 32% 32% 49% 46% 38% 38% 45% 44% 44%

19% 30,53% 30,80% 32,08% 32,98% 32,31% 32,40% 0% 20% 40%

0% 20% 40% 60% 80% 100%

Dec-09 Dec-10 Dec-11 Jan-12 Dec-12 Nov-13 6-Dec-13

>10 >5-10 >2-5 >1-2 0-1 % Foreign Ownership to Total (RHS)

Government Securities Outstanding 2008-2013

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GOVERNMENT SECURITIES Des '08 Dec-'09 Dec-10 Dec-11 Dec-12 Nov-13 05-Dec-13

• A. Tradable

648.335 724.898 803.191 919.236 1.085.173 1.396.203 1.401.096

• 1. Rupiah Denominated

525.695 581.748 641.215 723.606 820.266 1.003.339 1.006.839

• a. Government Debt Securities (SUN)

520.995 570.215 615.498 684.618 757.231 915.175 918.675 1) T-Bill 10.012 24.700 29.795 29.900 22.820 35.550 35.050 2) Zero-coupon bond 11.491 8.686 2.512 2.512 1.263

• 3) Fixed Rate bond *)

353.558 393.543 440.396 517.142 610.393 756.870 760.870 4) Variable Rate bond 145.934 143.286 142.795 135.063 122.755 122.755 122.755

• b. Government Islamic Securities (SBSN)

4.700 11.533 25.717 38.988 63.035 88.164 88.164 1) Fixed Rate Islamic bond **) 4.700 11.533 25.717 37.668 62.840 78.541 78.541 2) T-Bill Syariah 1.320 195 9.623 9.623

• 2. Foreign Currency Denominated

122.640 143.150 161.976 195.630 264.907 392.864 394.257

• a. Government bond (million US$)

11.200

14.200 16.200 18.700 22.950 27.140 27.140

• b. Islamic bond (million US$)
• 650

650 1.650 2.650 4.150 4.150

• c. Government bond (million JPY)
• 35.000

95.000 95.000 155.000 155.000 155.000

• B. Non Tradable

258.160 254.561 261.215 268.419 275.927 267.408 266.403

• a. Promissory note to central bank

258.160

251.875 248.432 244.636 240.144 235.875 234.870

• b. T-Bill (Private Placement)
• c. Government Islamic Securities
• 2.686

12.783 23.783 35.783 31.533 31.533

TOTAL GOVERNMENT SECURITIES (A +B) 906.495 979.459 1.064.406 1.187.655 1.361.101 1.663.611 1.667.498

Notes:

• Nominal on billion IDR
• +) Includes ORI
• ++) Includes Sukuk Ritel
• Exchange rate (IDR/US$1)

10.950

9.400 8.991 9.068 9.670 11.977 12.018

• Exchange rate (IDR/JPY1)

101,70 110,29 116,80 111,97 116,80 117,51

Well established policies in place to address and mitigate sudden reversal

19 Potential purchase of government bonds by State Owned Enterprises Implementing Crisis Management Protocol

1

Implementing Bond Stabilization Framework

2

Enhancing coordination between government institutions (FKSSK) and continuous dialogue with market participants

3

Specific policies in place to address crisis enacted in the 2013 budget law

4

Swap facility arrangements based on international cooperation

5

Buyback funds  Indicators to determine crisis level of Government Securities Market condition (normal, aware, alert, crisis)  There are some indicators that are monitored  Benchmark yield on Government securities  Exchange rate  Jakarta Composite Index (JCI)  Foreign ownership in Government securities  Policies to address the crisis at every level  Re-purchase Gov. securities at secondary market  Postpone or stop the issuance of Govt. securities Deferred Drawdown Option facility Chiang Mai Initiative Multilateralization Specific articles in the 2013 State Budget Law that provide flexibility for Government to take quick mitigation action if necessary, with Parliament approval that has to be given within 24 hours

1 2 3

DMO Budget SOE Budget Other Gov’t Budget Buyback of government bonds by the DMO from the state budget Related SOEs (min. Alert level) KUN (State’s General Cash) (min. Alert level) Potential purchase of government bonds by the Treasury Office using the State’s General Cash (KUN) Potential purchase of government bonds by the Indonesia Investment Agency PIP Investment funds (min. Alert level) SAL (min. Crisis level) Purchase of government bonds using the accumulated cash surplus (SAL). Parliament approval is required

Pre-emptive measures Crisis Management Protocol Bond Stabilization Framework Fiscal Buffers to prevent and mitigate crisis

END OF PRESENTATION

Directorate General of Debt Management Ministry of Finance of Republic of Indonesia Directorate of Government Securities Frans Seda building, 4th floor,

• Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710

Phone: +6221 3810175

• Fax. : +6221 3846516

Site: www.djpu.depkeu.go.id