ASEAN+3 Bond Market Guide 2017

Indonesia

• Publisher: Asian Development Bank
• Year: 2017
• ISBN:
  9789292578787
• Topic: Betriebswirtschaft
• Subtopic: Anleihen

ASEAN+3 Bond Market Guide is a comprehensive explanation of the region's bond markets. It provides information such as the history, legal and regulatory framework, specific characteristics of the market, trading and transaction (including settlement systems), and other relevant information. The Bond Market Guide 2017 for Indonesia is an outcome of the support and contributions of ASEAN+3 Bond Market Forum members and experts, particularly from Indonesia.

III Characteristics of the Indonesian Bond Market

The Government of Indonesia issues securities regularly and in a variety of forms and tenors to meet is budgetary needs and cater to different investor universes. BI continues to issue its own securities to support its open market operation and to offer liquidity management tools for the financial industry. Corporate bonds and notes in the Indonesian market are typically issued in rupiah; this is also the case for private placements to professional market participants.

Indonesian issuers, both sovereign and corporate, have been issuing IDR-denominated debt securities across a number of categories for many years and in significant volume, for both conventional bonds and sukuk. Hence, local currency issuance is a familiar issuance approach to both issuers and investors in Indonesia, including foreign institutional investors. Foreign-currency-denominated private placements have also been observed in the Indonesian market.

The characteristics specific to the Indonesian bond market are described in more detail in this chapter.

A. Definition of Securities

The current fundamental and key legislation does not contain a consolidated definition of securities. Instead, securities are mentioned and some examples are given in both legislation and a number of applicable regulations for the individual purposes of and use by market institutions.

1. Definition in the Capital Market Law

Pursuant to the Capital Market Law, securities are promissory notes, commercial paper, shares, bonds, evidences of indebtedness, participation units of collective investment contracts, futures contracts related to securities, and all derivatives of securities.

2. Reference to Debt Securities in Bank Indonesia Regulations

BI regulations refer to debt securities in the following manner:

Debt Securities are debt instruments, notes payable, bonds, credit securities, or its respective derivative, or other interests, or a liability of the issuers, in the form of commonly traded instruments at capital and money markets, including bonds issued by multilateral institutions or supranational in which all funds from the issuance of bonds are used for the financing interest of economic activities in Indonesia, including securities based on Sharia principle.

For specific definitions of individual debt instruments, readers are directed to BI’s Circular Letter to All Commercial Banks and Intermediary Agencies in Indonesia concerning Open Market Operations, which also explains its role in the issuance and handling of debt securities in great detail.¹⁸

3. Reference to Debt Securities in Indonesia Stock Exchange Rules

In the definitions of its Rule Number III-C concerning Securities Exchange Membership to Perform Debt Securities, Sukuk, and Fixed Income Asset-Backed Securities Trading, IDX refers to debt securities, as follows:

Debt Securities means Debt Securities as set forth in Bapepam-LK Rule Number IX.C.11 concerning Rating Upon Debt Securities, and Securities issued and guaranteed by the Government of Indonesia as intended in Article 70 paragraph (2) letter d of Law Number 8 of 1995 concerning Capital Market.

4. Debt Securities in Indonesia Clearing and Guarantee Corporation Rules

KPEI Rule Number V-1 on Clearing and Transaction Settlement Guarantee of Debt Securities provides a practical reference to debt securities as follows:

Debt Securities are Scripless Debt Securities listed and traded in the Stock Exchange.

5. Debt Securities in Indonesia Central Securities Depository Regulations

In Chapter 1 (1.1 Definitions) of its CSD Regulations, KSEI defines debt securities in the following manner:

Debt Securities shall mean the Securities in the form of debentures which have been registered by the Securities Issuer at KSEI, Certificates of Bank Indonesia, and Government bonds.

B. Types of Bonds, Notes, and Sukuk

The amount issuance of debt securities—conventional and sukuk, as well as ABS—in the Indonesian market is significant and comes in a variety of debt securities types and formats by a multitude of issuers. While the Indonesian government is the main issuer of debt securities, the market also features substantial issuances from the private sector, plus instruments issued by BI, and municipal bonds. Debt securities are issued mostly in Indonesian rupiah but selected instruments may also be issued in foreign currencies, including in the domestic market.

1. Debt Securities Issued by the Government

Debt securities issued by the Government of Indonesia are typically referred to in their entirety as Surat Berharga Negara (SBN), including in official statistics issued by BI and other institutions.¹⁹ SBN, in effect, consist of Treasury bonds and Treasury bills, retail bonds of different varieties, as well as their equivalent sukuk. Collectively known as SBN, Treasury bonds and Treasury bills are also referred to as Surat Utang Negara (SUN).

Government securities are issued in Indonesian rupiah domestically, as well as in foreign currencies in international markets, pursuant to regulations issued by the MOF.

The legal basis for the management of SUN and Sukuk Negara (SBSN) is contained in Law No. 24/2002 on Government Debt Securities and Law No. 19/2008 on Government Sharia Securities. These laws are supplemented by other derivative regulations, comprising government regulations, MOF decrees, and director general’s letters to cover the management of government securities (SUN and SBSN), excluding the instrument types which may be employed under the discretionary policy of the Directorate General of Budget Financing and Risk Management.

a. Government Debt Securities (Obligasi Negara)

The legal basis for the issuance of (conventional) government debt securities is Law Number 24 of 2004 concerning Conventional Based Government Securities. The law describes government bonds as government debt securities with a maturity of more than 12 months that have been issued with a coupon or at a discount. Market participants and official MOF materials refer to government bonds as the abbreviation for Obligasi Negara (ON), which may be placed via public offers or private placements in the domestic or in international markets (see section E of this chapter).

Since 2002, the Government of Indonesia, represented by the MOF, has issued different types of government bonds based on this law as the government has the flexibility to issue any type of bonds that meet market preferences. As such, the government has issued series including coupon-bearing and zero-coupon bonds; fixed- and variable-rate bonds; and tradable and nontradable bonds, including retail bonds with different maturities ranging from short-term to medium-term to long-term bonds (see also subheadings d and e).

Variable-rate bonds, also known as floating-rate bonds, have a variable coupon equal to the 3-month SBI market interest rate, which is referred to as the average rate method. The issuance of variable rate bonds aims to recapitalize banks by restoring their negative capital adequacy ratios. In cases when BI discontinues the issuance of 3-month SBI, the reference rate for variable rate bonds is changed to the 3-month Surat Perbendaharaan Negara (SPN).

In addition, domestic government bonds outstanding still include nontradable promissory notes that were issued under the banking liquidity support and guarantee program in response to the 1997/98 Asian financial crisis.

b. Treasury Bills (Surat Perbendaharaan Negara)

SPN, as they are referred to in the market, are Treasury bills, or short-term notes issued by the government and sold at a discount. The maximum maturity of SPN is 12 months. The government regularly offers 3-month and 12-month SPN at every auction.

c. Government Retails Bonds (Obligasi Negara Ritel)

Government retail bonds, or Obligasi Negara Ritel (ORI), are issues specifically designed for retail investors. ORI carry a minimum denomination of IDR5 million to allow small savers to also invest in government securities. ORI are issued in Indonesian rupiah only, with a fixed coupon, and a tenor of 3–5 years. ORI are sold to individual investors via selling agents in the primary market. In the secondary market, ORI are traded via banks and securities companies.

d. Government Retail Savings Bonds (Saving Bond Ritel)

Retail savings bonds, or SBR, have similar issuance purposes and denominations as ORI. However, these bonds have characteristics different from ORI in that they are nontradable, come with a floating interest rate determined by the Indonesia Deposit Insurance Corporation on a periodical basis, and have an early redemption feature. To ensure reasonable returns, the floating rate has a floor. SBR are sold to individual investors via selling agents.

e. Government Sharia Securities (Sukuk Negara or Surat Berharga Syariah Negara)

The legal basis for the issuance of Sukuk Negara, or SBSN, is Law Number

19 of 2008 concerning Government Sharia Securities. The law describes Sukuk Negara as sovereign securities issued based on Islamic principles, as evidence of the participation in SBSN assets, issued both in Indonesian rupiah and foreign currencies. The issuance of Sukuk Negara is not only for financing the State Budget (general financing), but also to finance the construction of projects allocated in the State Budget. The issuance of SBSN may be conducted directly by the government or by the SBSN Issuing Company, which is an onshore special purpose vehicle established by government regulation. Market participants and official MOF materials refer to government Sharia securities as both SBSN and Sukuk Negara. Sukuk Negara may be placed via public offer or private placement in domestic or international markets.

Since 2008, the Government of Indonesia, represented by the MOF, has issued seven types of Sukuk Negara with different maturities ranging from short to medium to long term, with a monthly or semiannual fixed coupon, and on a discounted basis. Both tradable and nontradable sukuk are issued for institutional and retail investors. The Government of Indonesia, with assistance from the National Sharia Board of the Indonesian Council of Ulama (DSN-MUI) has developed four sukuk structures by utilizing underlying assets in the form of fixed tangible assets and projects.

f. Government Project-Based Sharia Bonds (Project-Based Sukuk)

Project-based Sharia (PBS) bonds are Sharia-compliant government securities issued to secure financing for specific government projects that have been included in the government budget and which use said government project(s) as their underlying assets, utilizing an asset-to-be-leased agreement structure. PBS series are medium- to long-term sukuk with a fixed coupon payable semiannually and are offered at every auction.

g. Islamic Treasury Bills (Surat Perbendaharaan Negara-Syariah)

Surat Perbendaharaan Negara-Syariah (SPN-S), as they are referred to in the market, are Islamic Treasury bills, being short-term notes issued by the government and sold at a discount. Currently, the only maturity of SPN-S is 6 months. They have regularly been offered at every auction since February 2013.

h. Government Retail Sukuk (Sukuk Ritel)

Retail SBSN, or retail sukuk, are government Sharia bonds aimed at individual investors who must be Indonesian citizens. Retail SBSN are sold through selling agents—typically brokers—with a minimum denomination of IDR1 million and a maximum denomination of IDR5 billion. SBSN are issued in Indonesian rupiah only, with a fixed coupon payable monthly, and a tenor of 3.0–3.5 years. Retail SBSN terms and conditions are subject to revision in the future.

i. Government Savings Sukuk (Sukuk Tabungan)

Similar to retail sukuk in purpose and denomination, Sukuk Tabungan carry slightly different features such as being nontradable and having an early redemption option. Sukuk Tabungan are sold to individual Investors via selling agents (brokers).

j. Hajj Funds Sukuk (Sukuk Dana Haji Indonesia)

SDHI are sukuk issued to cater to the mutual needs of the MOF to finance the State Budget and the Ministry of Religious Affairs to place Hajj Funds. SDHI are nontradable sukuk with a medium- to long-term tenor and a fixed coupon payable monthly.

k. Government Debt Securities in Foreign Currencies

The Government of Indonesia also issues SUN denominated in foreign currencies in international markets, pursuant to Regulation Number 137/PMK.08/2013 regarding Sale and Buyback of Sovereign Debt Securities in Foreign Currency in the International Market, which superseded earlier regulations as amended by Regulation Nu...