Today, on 23-Aug, the government will hold another sukuk auction, targeted to issue Rp10tn or lower than the prev. sukuk auction’s target of Rp12tn. As scheduled, the government will offer 6-mo SPNS, 2.9-yr PBS031 (reopening), 4.9-yr PBS032 (reopening), 6.9-yr PBS030 (reopening), 12.6-yr PBS029 (reopening), 15.5-yr PBS004 (reopening), and 25.1-yr PBS028 (reopening). We still expect demand to remain robust, as there is strong support from onshore investors, ranging Rp32tn-42tn.
Total incoming bids remained solid. In the last sukuk auction on 10-Aug, total incoming bids remained solid at Rp51.7tn (vs. Rp56.7tn in the prev. sukuk auction and Rp35.2tn average total incoming bids per sukuk auction YTD). The total bids were driven by short tenors, i.e., 2.9-yr PBS031 and 6-mo SPNS, which reached Rp12.1tn and Rp10.3tn or contributed 23.3% and 19.9% to the total incoming bids, respectively. Meanwhile, the longer tenor PBS series also attracted bigger demand than in the previous auction. This may indicate that the types of investor bids during the auction might have varied, not only mostly coming from banks, but also institutional non-banks, such as pension fund and insurance companies.
Despite the relatively high incoming demand, the government issued only Rp11tn—lower than the initial target of Rp12tn—with the highest issuance being for the longest tenor 25.2-yr PBS028, totaling Rp3.3tn or 30% of the total sukuk issuances. Note, lower issuance made the average yield awarded slightly lower than our forecast. The blended weighted government cost of fund increased to 5.82% (vs. 4.99% in the previous auction), but the weighted average tenor also increased significantly to 12.73 years (vs. 4.35 years in the previous auction).
Meanwhile, YTD, the government has already issued Rp916.5tn-gross as of 23-Aug or c. 73.2% of the new full gross issuance target for this year.
Onshore banks were (still) the most active investor in sukuk in the primary market, while “other” investors were the most active in the secondary market. Based on DMO data, in the last sukuk auction on 10-Aug, onshore banks were still the biggest sukuk net buyer, reaching Rp4.2tn or c.37.3% of the total issuance (vs. Rp10tn in the previous auction and Rp6.5tn average per auction YTD), followed by insurance & pension fund companies and other investors (incl. BPKH) at Rp3.2tn and Rp2.3tn, respectively (vs. Rp2tn and Rp0.3tn in the previous auction and Rp1.4tn and Rp0.8tn average per sukuk auction YTD). Meanwhile, including the secondary market, YTD, other investors (incl. BPKH institution) were the biggest sukuk net buyer, totaling +Rp39.8tn, followed by Bank Indonesia and insurance & pension companies, at +Rp34.5tn and +Rp24.4tn YTD, according to the DMO data with settlement date as of 19-Aug.
Demand is projected to remain solid but at a slower pace. We predict demand for sukuk to remain solid but at a slower pace after the last conventional bond auction, ranging Rp32tn-42tn. But, we (still) see three positive catalysts during sukuk auction today: 1) Liquidity projection in the banking system is still flush at Rp291.6tn as of 23-Aug (vs. Rp222tn in the prev. sukuk auction on 10-Aug). 2) There will be Rp1tn of SPN series maturing this week and additional coupons totaling Rp786.4bn. 3) Indonesia’s released economic data recently, i.e., the current account balance in 2Q 2021 at USD 2.23bn deficit or -0.77% of GDP in 2Q-2021 (vs. US 1.06bn deficit or -0.38% of GDP in 1Q 2021). The widened current account deficit is a good sign for the economy.
Compared with the previous sukuk auction on 10-Aug, the rupiah yield curve is steepened, as the 2-yr bond yield has lowered by 6 bps to 4.12%, while the 10-yr bond yield has increased slightly by 2 bps to 6.36%. We forecast the fair yields for the bond series to be auctioned today as follows: 2.93% (range 2.88-2.98%) for 6mo, 4.44% (range 4.39-4.49%) for 2.9-yr PBS031, 5.12% (range 5.07-5.17%) for 4.9-yr PBS032, 5.87% (range 5.82-5.92%) for 6.9-yr PBS030, 6.46% (range 6.41-6.51%) for 12.6-yr PBS029, and 7.15% (range 7.1-7.2%) for 25.1-yr PBS028.
(Source: Mandiri Sekuritas)
Today’s INDOIS “SBSN” Auction Indics (24-Aug-2021) :
SPNS 6mo : 2.88%-2.98%
PBS31 : 4.39%-4.49%
PBS32 : 5.07%-5.17%
PBS30 : 5.82%-5.92%
PBS29 : 6.41%-6.51%
PBS28 : 7.10%-7.20%
The Auction time is 09.00-11.00 AM JKT time.
(Source: Mandiri Sekuritas)
Sukuk Auction Incoming Bids Recap (24-Aug): Solid Demand Continues; 12.6-yr PBS29 Attracts the Biggest Demand So Far This Year
6mo-SPNS : IDR 7.35 Tn
Range : 2.85-3.00 pct (vs. previous auction 2.90-3.22 pct)
2.9yr-PBS031 : IDR 13.99 Tn
Range : 4.32-4.53 pct (vs. previous auction 4.36-4.60 pct)
4.9yr-PBS032 : IDR 7.55 Tn
Range : 5.07 – 5.24 pct (vs. previous auction 5.10 – 5.30 pct)
6.9yr-PBS030 : IDR 3.48 Tn
Range : 5.83-5.94 pct (vs. previous auction : 5.92-6.15 pct)
12.6yr-PBS029 : IDR 14.17 Tn
Range : 6.43-6.60 pct (vs. previous auction 6.45-6.82 pct)
25.1yr-PBS028 : IDR 5.91 Tn
Range : 7.11-7.31 pct (vs. previous auction 7.10-7.33 pct)
Total Incoming Bids: IDR 52.47 Tn (vs. IDR 51.66 Tn previous auction and IDR 10 Tn initial target) vs. our forecast IDR32-42tn
(Source: DMO and Mandiri Sekuritas)