Government Debt Securities Management January 27, 2014 Directorate - - PowerPoint PPT Presentation

Government Debt Securities Management

January 27, 2014

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

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |2

Government Securities Management and Financing Strategy

General Strategy for Debt Financing 2014

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

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |4

Government Securities Market Development Framework

Supply

• Government

Debt Securities

• SUKUK

Demand

• Banks
• Foreigners
• Insurance

Company

• Mutual Fund
• Central Bank
• Pension Funds
• Securities

Company

• Retail Investor
• Domestic

Potential Investors

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)

MARKET INFRASTRUCTURE

Regulation and Supervision

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |5

Financing Trend, 2004 – 2014

(trillion IDR) Notes: * Preliminary Realization 2013 ** Budget 2014

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |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 91,1 119,9 159,7 224,6 205,1 Domestic Loan

• 0,4

0,6 0,8 0,2 1,0 External Loan - net (28,1) (10,3) (26,6) (26,6) (18,4) (12,4) (4,6) (17,8) (23,5) (13,3) (20,9) Others/Non-Debt - net 42,0 (1,2) 20,0 9,1 16,6 25,5 4,6 28,3 38,1 18,6 (9,8) Budget Defisit, % to GDP 1,1 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,2 1,7

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

(0,5)

• 0,5

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

• 50

50 100 150 200 250

Securities Financing Realization 2014

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |7

*Adjusted by changes in Cash Management & Debt Switch

(Million IDR) Budget 2014

Realization (ao January 24, 2014)

% Realization to Budget 2014 Government Securities Maturing in 2014 165.292.745 8.630.000 5,22% Government Securities Net 205.068.831 80.238.000 39,13% Buyback 3.000.000

• 0,00%

Issuance Need 2013* 370.361.576 88.868.000 23,99% Government Debt Securities (GDS) 85.868.000 Domestic GDS 37.400.000

• Coupon GDS (Auction, Private Placement)

20.000.000

• Conventional T-Bills (Auction, Private Placement)

5.000.000

• SPNNT 20140303

12.400.000

• Retail Bonds
• International Bonds

48.468.000

• USD Global Bonds

48.468.000

• USD Domestic Bonds

Government Islamic Debt Securities 3.000.000 Domestic Government Islamic Debt Securities 3.000.000 Global Sukuk

2014 Budget Financing

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |8

[in IDR billion]

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

Government Securities Financing Gross (2014)

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |9

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%

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

• f 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 Debt Securities Operation Plan (2014)

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |10

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
• unguaranted Samurai bonds issuance
• 1. Issuance:
• debt switch many to many
• staple bonds
• global bond liability management
• reopening SPN
• 2. Government Securities Liquidity

Enhancement:

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |11

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

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |13

Primary Market Performance 2014

During 2013, foreign participation in domestic bond auction was higher than 2012. In the first auction of 2014, foreign demand still continues to hike. 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 59,68 11,71 23,57 22,54 39,30 70,78 66,06 79,20 101,90 138,85 152,77 207,85 37,40 11,92 10,42 13,97 10,14 10,01 11,86 10,04 7,57 5,96 5,30 8,49 8,42

3 6 9 12 15

• 100

200 300 400 500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 21-Jan- 14

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

[IDRTrillion] 48 32 45 39 32 38 37 52 31 30 32 32 50 42

10 20 30 40 50 60 2008 2009 2010 2011 2012 2013 a.o. 27 Jan, 2014

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

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |14

Secondary Market Performance 2014

Average daily trading (IDR Trilion)

Up to Jan 10, 2014

Global Financial Crisis

Eurozone sovereign debt crisis

[In Percentage]

As of Jan 24, 2014

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 Government Bond Turn Over 10 Y Government Bond

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 Jan-14

2.549 3.307 5.899 4.235 3.421 4.963 7.671 9.180 6.657 7.603 7.421 7.932 9.092 11.081 12.330 11.263 18.556 15.524 13.511 23.323 16.686

• 80

160 240 320 400 480

• 6.000

12.000 18.000 24.000 30.000

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 Dec 13 23 Jan 14

Volume (billion rupiah) - LHS Frequency -RHS

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |15

Yield SBN on peer’s market

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

HK 2.360 +5.5 +5.5 ID 8.666 +21.4 +21.4 JP 0.661

• 8.0
• 8.0

KR 3.655 +7.0 +7.0 MY 4.204 +7.6 +7.6 PH 4.106 +50.6 +50.6 SG 2.470

• 9.0
• 9.0

TH 3.961 +6.4 +6.4 US 2.777

• 25.1
• 25.1

VN 9.000

• 5.0
• 5.0
• Market Watch as of January 27, 2014
• Source: Asian Bonds Online

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

24 Jan '14 17 Jan '14 24 Dec '13 9 Feb '12 23 Sep '11 27 Oct '08 13 Sep'05 [in percentage]

Tenor 24-Jan-14 17-Jan-14 24-Dec-13 9-Feb-12 23-Sep-11 27-Oct-08 13 Sep'05 1Y 7.39 7.35 6.53 3.30 5.29 19.37 2Y 7.56 7.67 7.46 4.21 6.01 17.35 14.59 3Y 7.75 7.77 7.67 4.33 6.13 19.93 4Y 7.91 7.97 7.84 4.39 6.54 17.17 14.14 5Y 7.91 7.78 7.89 4.44 6.69 17.46 14.96 6Y 8.36 8.16 8.02 4.79 6.81 17.05 15.24 7Y 8.49 8.31 8.19 4.88 7.08 17.06 16.17 10Y 8.68 8.40 8.39 5.02 7.43 20.91 15.75 15Y 9.11 8.93 8.40 5.47 7.83 16.65 14.12 20Y 9.12 8.77 8.40 5.96 8.20 20.27 30Y 9.25 9.25 8.92 6.17 8.29 20.37

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |16

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% 335,43 33,70% 367,73 36,16% Govt Institutions 22,50 3,87% 17,42 2,72% 7,84 1,08% 3,07 0,37% 44,44 4,47% 21,18 2,08% Non-Banks 304,89 52,41% 406,53 63,40% 450,75 62,29% 517,53 63,09% 615,38 61,83% 627,95 61,75% Mutual Funds 45,22 7,77% 51,16 7,98% 47,22 6,53% 43,19 5,27% 42,50 4,27% 43,13 4,24% Insurance Company 72,58 12,48% 79,30 12,37% 93,09 12,86% 83,42 10,17% 129,55 13,02% 132,14 12,99% Foreign Holders 108,00 18,56% 195,76 30,53% 222,86 30,80% 270,52 32,98% 323,83 32,54% 332,72 32,72% Pension Fund 37,50 6,45% 36,75 5,73% 34,39 4,75% 56,46 6,88% 39,47 3,97% 39,81 3,91% Securities Company 0,46 0,08% 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,88 0,09% 0,92 0,09% Individual 32,48 3,26% 31,80 3,13% Others 41,12 7,07% 43,43 6,77% 53,05 7,33% 63,64 7,76% 46,68 4,69% 47,43 4,66% Total 581,75 100% 641,21 100% 723,61 100% 820,27 100% 995,25 100% 1.016,86 100% Dec-12 Dec-09 Dec-10 23-Jan-14 Dec-11 Dec-13

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |17

Foreign Investor Activity 2014

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

[In IDR Trillion]

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 (0,37) 8,90 (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 31-Dec-13 23-Jan-14

Capital Inflows Capital inflows over total foreign holders

4% 10% 12% 8% 6% 5% 6% 5% 5% 8% 3% 5% 5% 5% 20% 18% 17% 16% 13% 13% 13% 22% 21% 25% 28% 32% 32% 32% 49% 46% 38% 45% 44% 44% 45%

19% 30,53% 30,80% 32,98% 32,31% 32,54% 32,72%

0% 20% 40%

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

Dec-09 Dec-10 Dec-11 Dec-12 Nov-13 Dec-13 23-Jan-14

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

Directorate of Gov Debt Securities, DG of Debt Management Ministry of Finance Republic of Indonesia |18

Deferred drawdown option facilities up to US$5bn Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Specific policies in place to address crisis enacted in the 2013 budget law Swap facility arrangements based on international cooperation with a total value of US$47.76bn (China, Japan and South Korea BSA) 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

Pre-emptive Measures Fiscal Buffers to Prevent and Mitigate Crisis

 The FKSSK, Consists of Minister of Finance, BI Governor, Head of Indonesian FSA and Head of Indonesian Deposit Insurance Corporation, manages the Nationwide Crisis Management Protocol (CMP) Framework as guidance and procedures for national crisis prevention and mitigation measures.  The nationwide CMP incorporates the Exchange Rate, Banking, Non-Bank Financial Institution, Capital Market, Government Bonds Market (SBN), and Fiscal CMPs.  Coordination Meeting is conducted regularly to discuss and assess the current level of Financial System Stability and current issues related to the financial system  In 2013, FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre- emptive instrument (CMIM) at technical Crisis Management Protocol Potential purchase of government bonds by State Owned Enterprises Buyback Funds 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 Bond Stabilization Framework 1 2 3 4 5 1 6 2

Comprehensive Stabilization Framework to Pro-Actively Manage Capital Markets

END 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