Daily Fixed Income Research (26 Aug 2021)

Long-Duration INDOGB Rallies the Most; July Budget Realization indicate ongoing economic recovery

INDOGB and JCI continued up on foreign inflows, but the rupiah fell slightly against the USD on Wednesday. The JCI rose 0.4% to 6,113.2 (+0.7% MTD or +2.2% YTD), with foreign reporting net inflow of Rp789bn (net inflow of Rp3.2tn MTD or Rp20.9tn YTD). Meanwhile, Asian stock markets closed mostly lower, following 2 days of sharp gains as the Nikkei and Hang Seng indices decreased moderately, each by 0.03% and 0.1% to 27,724.8 (+1% YTD) and 25,694 (-5.6% YTD) ahead of Fed summit. The rupiah depreciated slightly by 0.03% to Rp14,398/USD (appreciated by 0.5% MTD or depreciated by 2.5% YTD).

INDOGB yields continued falling, with foreign reporting net buy of Rp1.8bn, mostly from benchmark series, i.e., +Rp1.3tn, according to the CTP PLTE on Wednesday. According to Bloomberg, the 5-yr FR86 benchmark series was trading at 101.92 (+0.3%) or yielded 5.03% (-7.4 bps), the 10-yr FR87 at 102.15 (+0.34%) or yielded 6.2% (-4.8 bps), the 15-yr FR88 at 99.68 (+0.13%) or yielded 6.28% (-3.2 bps), and the 20-yr FR83 at 106.5 (+1.64%) or yielded 6.88% (-15.9 bps). Regarding the 10-yr RoI USD global bond that will mature in Mar-2031, its price fell slightly to 97.26 (-0.06%), yielding 2.17% (+0.7 bps), and the 5-yr CDS went up slightly to 72.86 (+0.14 bps).

In the latest DMO bond flow data as of 24-Aug (reflecting trading on 20-Aug), foreign ownership in government bonds fell by Rp2.56tn to Rp972.72tn (still net inflow of Rp6.9tn MTD or -Rp1.2tn YTD) or 22.3% of the total outstanding. YTD, the biggest net buyer of government bonds (incl. sukuk) is onshore banks at Rp150.7tn, followed by BI at Rp123.5tn, insurance & pension fund at Rp91.8tn, retail investors at Rp67.9tn, and others at Rp81.4tn (note: there is also private placement with the government from other investors totaling Rp4tn on 24-Aug).

From the Aug-2021 APBN KiTa Press Conference, until the end of Jul-2021, the budget realization has had a deficit of Rp336.9tn or +2% YoY or -2.04% of GDP in Jul-2021 (vs. -2.14% of GDP in Jul-2020). The state revenue kept reporting positive growth, at 11.8% YoY, reaching Rp1,031.5tn (vs. +9.3% in Jun-2021 and -12.4% in the same period last year), while government spending realization also grew positively by 9.3% YoY to Rp1,368.4tn (vs. +9.5% YoY in Jun-2021 and +1.3% YoY in the same period last year). On the financing side, financing realization reached Rp447.8tn YTD or increased slightly by Rp28.6tn, with SBN net issuance contracting slightly by Rp3.9tn in Jul-2011 as maturing government bonds reached Rp123.6tn, while the government issued bonds at Rp119.7tn. Overall, the excess financing (SilPA) has decreased to Rp25tn from Rp135.9tn in Jul-2021 (vs. Rp110.9tn in Jun-2021 vs. Rp172.9tn in Jul-2020). Government bonds are still the main funding source for the budget deficit, with net government bond issuance worth Rp487.4tn and BI’s bond purchase (SKB I) reaching Rp136.01tn as of 20-Aug-2021.

Domestic Corp Bond Market

The trading volume of IDR corporate bonds in the secondary market on Tuesday lowered to Rp624bn (vs. Rp985bn in the previous day and Rp868bn average trading volume per day in the previous week).

The IIFF01ACN2 series (Maturity: 28-Oct-21) with idAAA rating was the most actively trading, totaling Rp120bn, with the closing price at 100.35 thus yielding at 3.01%. Followed by ADHI02CN1 series (Maturity: 22-Jun-22) with idA- rating, posting total volume of trading of Rp100bn, and giving 411 bps risk premium above risk-free yield.

Pefindo has affirmed its ‘idAAA’ rating to PT Indonesia Infrastructure Finance (IIF)’s Shelf Registered Bond I/2020 Phase II Series B with a size of Rp570bn that will mature on 28-Oct-2021. The Company’s readiness to repay its maturing bond is supported by its cash and cash equivalents and liquid marketable securities of Rp4.3tn at the end of June 2021.

Pefindo has affirmed its ‘idA-‘ ratings for PT Adhi Karya (Persero) Tbk (ADHI) and its shelf-registered bond I, shelf-registered bond II, and shelf-registered bond III. The outlook for the corporate rating has been revised to ‘stable’ from ‘negative’. The outlook revision reflects Pefindo’s expectation that ADHI will maintain its financial profile with strong access to funding, which subsequently will support its liquidity. Pefindo sees ADHI was able was able to manage its liquidity from the risk of a cash flow miss match, stemming from its project’s long life cycle, as reflected in its success in continuously rolling over its short-term working capital loans with domestic banks, state-owned in particular. In addition, Pefindo also expect ADHI to improve its earnings visibility on account of a relatively strong new contract wins in 2020 and 1H21, which adds scale and lessens the concentration risk from its ongoing projects in the Greater Jakarta LRT and Aceh-Sigli toll road. According to Pefindo the supporting factors for ADHI’s rating are as follow: 1) strong market position in the construction sector; 2) benefits as a state contractor; and 3) strong synergy with subsidiaries. The rating, however, is constrained by: 1) high leverage and weak cash flow protection measures; execution risks related to growing order book; and 3) volatile business environment in the construction sector.

Pefindo has assigned ‘idBBB’ financial strength rating to PT Asuransi Bhakti Bhayangkara (ABB). The outlook for the rating is ‘stable’. According to Pefindo, the rating reflects ABB’s: 1) captive business with the national police force (Kepolisian Negara Republik Indonesia or Polri): 2) conservative investment policy; and 3) high risk-based capital (RBC) ratio. However, the rating is constrained by its modest operating performance, modest equity base, and the tight competition in its non-captive businesses. Pefindo is of the view that the Covid-19 pandemic has moderately affected new business generation in the insurance industry. However Pefindo expects the pandemic’s impact on ABB’s credit profile to be manageable, considering its adequate liquidity position to settle potential claim payments.

Source: Mandiri Sekuritas