Government Securities Prospects in 2013

Directorate of Gov Debt Securities, DG of Debt ManagementMinistry of Finance Republic of Indonesia

Ministry of Finance of the Republic of Indonesia

Outline

1. Government Securities Management and Financing Strategy

2. Government Securities Performance3. Government Securities Market

Prospects in 2013

2

Government Securities Management and Financing Strategy

3

Strategi Umum Pengelolaan SUN 2013

Strategic Management of Government Securities 2013

4

Supply

•Government Debt Securities

•SUKUK

Demand•Banks•Foreigners•Insurance Company•Mutual Fund•Central Bank •Pension Funds•Securities Company•Retail Investor

Government Securities Market Development Framework

Deep & Liquid MarketSufficient Market Absorption & Efficient Price/Yield

Primary Market•Activities:Regular Issuance (Book building, Issuance, Private Placement)•Infrastructure:a. Auction System (in development process with IDX):-Electronic Trading Platform (ETP) for Retail Govt. securities- Hittable of PDs quotation -Debt Switch Program (Many to Many)b. Institutional infrastructure

Secondary Market•Activities:Buyback, Debt switch, Securities Lending•Infrastructure:Buyback System, Primary Dealers, Selling Agent, Repo, Benchmark Yield Curve, Brokers/Dealers, Price Discovery Mechanism

5

MARKET INFRASTRUCTURE

Regulation and Supervision

Financing Trend, 2004 – 2013

(trillion IDR)(trillion IDR)

Notes:* LKPP Unaudited 2012** Revised Budget 2013

Notes:* LKPP Unaudited 2012** Revised Budget 2013 6

2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013**

Govt Securities - net 6,9 22,6 36,0 57,2 85,9 99,5 91,1 119,9 159,7 231,8

Domestic Loan - - - - - 0,39 0,62 0,75 0,50

External Loan - net (28,1) (10,3) (26,6) (26,6) (18,4) (12,4) (4,57) (17,8) (25,1) (16,90)

Others/Non-Debt - net 42,0 (1,2) 20,0 11,9 16,6 25,5 4,6 28,3 37,9 (8,8)

Budget Defisit, % to GDP 0,5 0,9 1,3 0,1 1,6 0,7 1,1 1,8 2,38

-

0,5

0,9

1,3

0,1

1,6

0,7

1,1

1,8

2,38

(0,5)

-

0,5

1,0

1,5

2,0

2,5

-50

0

50

100

150

200

Gov’t Securities Issuance Plan 2013

2013 -

Budget

(trillion IDR)

% of GDP

2013-

Revised

Budget

(trillion IDR)

% of

Revised

GDP

Total Revenue & Grants 1.529,7 16,5% 1.502,0 16,0%of which Tax Revenue 1.192,99 12,9% 1.148,36 12,2%

Non Tax Revenue 332,20 3,6% 349,16 3,7%0,0% 0,0%Expenditure 1.683,0 18,2% 1.726,2 18,4%of which Interest payment 113,2 1,2% 112,5 1,2%0,0% 0,0%

Subsidy 317,2 3,4% 348,1 3,7%0,0% 0,0%Primary Balance (40,1) -0,4% (111,7) -1,2%

Overall Balance (deficit) (153,3) -1,7% (224,2) -2,4%

Financing 153,3 1,7% 224,2 2,4%0,0% 0,0%Non Debt (Net) (8,1) -0,1% (8,8) -0,1%Debt 161,5 1,7% 225,0 2,4%0,0% 0,0% Govt Securities (Net) 180,4 1,9% 231,8 2,5%0,0% 0,0%

Domestic Official Borrowing 0,5 0,0% 0,5 0,0%External Official Borrowing (Net) (19,5) -0,2% (16,9) -0,2%

Disbursement 45,9 0,5% 49,0 0,5% Program Loan 6,5 0,1% 11,1 0,1% Project Loan (Bruto) 39,4 0,4% 37,9 0,4%On lending (7,0) -0,1% (6,7) -0,1%Repayment (58,4) -0,6% 59,2 0,6%

Assumptions:

GDP (trillion) 9.269,6 9.404,7

Growth (%) 6,8 6,3

Inflation (%) 4,9 7,2

3-months SPN (% avg) 5,0 5,0

Rp / USD (avg) 9.300,0 9.600,0

Oil Price (USD/ barrel) 100,0 108,0

Oil Lifting (MBCD) 900,0 840,0

Item

7

Gov’t Securities Operation – Policy Combination Domestic market issuance will be prioritized Issuance in benchmark tenor, Benchmark Series for 2013:

Issuance in global market Maximum non-IDR govt securities issuance

approximately 18%-20% from total gov’t debt securities issuance

Buyback, debt switching, direct transaction Initiatives strategic :USD securities issuance in domestic

market & sukuk project financing

FR 66 – 5 Y FR 63 – 10 Y FR 64 – 15 Y FR 65 – 20 Y

Primary Dealers1. Citibank N.A2. Deutsche Bank AG3. HSBC 4. PT. Bank Central Asia, Tbk5. PT. Bank Danamon Indonesia, Tbk. 6. PT. Bank Internasional Indonesia, Tbk7. PT. Bank Mandiri (Persero), Tbk8. PT. Bank Negara Indonesia (Persero),

Tbk9. PT. Bank OCBC NISP, Tbk 10.PT. Bank Panin, Tbk

11.PT. Bank Rakyat Indonesia, Tbk12.PT. Bank Permata, Tbk 13.PT. Bank CIMB Niaga, Tbk14.Standard Chartered Bank15.JPMorgan Chase Bank NA.16.PT. Bahana Securities17.PT. Danareksa Sekuritas18.PT. Mandiri Sekuritas 19.PT. Trimegah Securities, Tbk

Financing Progress 2013

8*Adjusted by changes in Cash Management & Debt Switch

(Million IDR)

Revised Budget

2013Realization

(ao September 10, 2013)

% Realization

to Revised

Budget 2013

Government Securities Maturing in 2013 96.980.835 69.039.924 71,19%

Government Securities Net 231.800.000 149.690.566 64,58%

Buyback 3.000.000 1.551.385 51,71%

Issuance Need 2013* 331.780.835 220.281.875 66,39%

Government Debt Securities (GDS) 187.078.000

Domestic GDS 147.850.000

- Coupon GDS (Auction, Private Placement) 112.600.000

- Conventional T-Bills (Auction, Private Placement) 35.250.000

International Bonds 39.228.000

- USD Global Bonds 39.228.000

Government Islamic Debt Securities 33.203.875

Domestic Government Islamic Debt Securities 33.203.875

Global Sukuk -

Government Securities Performance

Primary Market Performance

10

In the last auction, foreign participation reached the highest level of success rate (34%), meanwhile the average foreign participation in Government Debt Sec Auction is 56%.

Increasing volatility in second quarter 2013 influenced demand in domestic market

24,60 53,98 48,73

95,57

189,46

136,18

198,23

315,91

393,41

430,59

275,74

11,71 23,57 22,54

39,30

70,78 66,06 79,20

101,90

138,85 152,77 135,85

11,92

10,42

13,97

10,14 10,01

11,86

10,04

7,57

5,965,30

8,60

0

3

6

9

12

15

-

100

200

300

400

500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 August 27, 2013

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

[IDR Trillion]

48

32

45

39

3234

52

31 3032 32

50

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 Jan up to August 2013

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

0

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

2,00

4,00

6,00

8,00

10,00

12,00

14,00

16,00

18,00

20,00

22,00

Ap

r'08

Ju

n'0

8

Ag

us

t'08

Ok

t'08

De

s'0

8

Fe

b'0

9

Ap

r'09

Ju

n'0

9

Ag

us

t'09

Ok

t'09

De

s'0

9

Fe

b'1

0

Ap

r'10

Ju

n'1

0

Ag

us

t'10

Ok

t'10

De

s'1

0

Fe

b'11

Ap

r'11

Ju

n'11

Ag

us

t'11

Ok

t'11

De

s'11

Fe

b'1

2

Ap

r'12

Ju

n'1

2

Ag

us

t'12

Ok

t'12

De

s'1

2

Fe

b'1

3

Ap

r'13

Ju

n'1

3

Ag

us

t'13

5Y 10Y

15Y 20Y

Average daily trading (IDR Trilion)Average daily trading (IDR Trilion)

Secondary Market Performance

11

Up to Sept 4, 2013

Global Financial Crisis

Eurozone sovereign debt crisis

[In Percentage] As of Sept 10, 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 increasingYield 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 9.389

6.657 7.603 7.421 7.932 9.092

11.081

14.926

11.263

22.151

-

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

3 Sep 13

Volume (billion rupiah) - LHS

LCY 10 Year Government

BondsLatest Yield YTD Change (BP)

MTD Change (BP)

HK 2.457 +185.9 +12.2

ID 8.818 +362.7 +40.3

JP 0.747 -4.4 +2.7

KR 3.620 +46.0 +9.0

MY 3.900 +39.7 -15.6

PH 3.440 - 71.10 -0.3

SG 2.690 +139.0 +2.0

TH 4.361 +85.1 +9.3

US 2.964 +120.7 +18.0

VN 9.150 - 105.0 +10.0

Yield SBN pada peer’s market

• As of September 11, 2013• Source Asian Bonds Online 

12

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

13

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% 314,34 35,38% 291,93 32,01% 333,74 36,00% 349,84 37,75%

Govt Institutions 22,50 3,87% 17,42 2,72% 7,84 1,08% 3,07 0,37% 29,13 3,28% 66,95 7,34% 38,20 4,12% 22,25 2,40%

Non-Banks 304,89 52,41% 406,53 63,40% 450,75 62,29% 517,53 63,09% 545,05 61,34% 553,14 60,65% 555,13 59,88% 554,76 59,85%

Mutual Funds 45,22 7,77% 51,16 7,98% 47,22 6,53% 43,19 5,27% 39,61 4,46% 40,02 4,39% 40,06 4,32% 39,87 4,30%

Insurance Company 72,58 12,48% 79,30 12,37% 93,09 12,86% 83,42 10,17% 126,38 14,22% 125,09 13,72% 124,69 13,45% 125,19 13,51%

Foreign Holders 108,00 18,56% 195,76 30,53% 222,86 30,80% 270,52 32,98% 282,96 31,85% 285,77 31,33% 284,01 30,64% 283,08 30,54%

Pension Fund 37,50 6,45% 36,75 5,73% 34,39 4,75% 56,46 6,88% 29,11 3,28% 33,71 3,70% 37,65 4,06% 37,76 4,07%

Securities Company 0,46 0,08% 0,13 0,02% 0,14 0,02% 0,30 0,04% 0,99 0,11% 1,14 0,12% 1,10 0,12% 1,04 0,11%

Individual 25,02 2,82% 25,17 2,76% 23,23 2,51% 23,40 2,53%

Others 41,12 7,07% 43,43 6,77% 53,05 7,33% 63,64 7,76% 40,97 4,61% 42,24 4,63% 44,39 4,79% 44,41 4,79%

Total 581,75 100% 641,21 100% 723,61 100% 820,27 100% 888,51 100% 912,03 100% 927,07 100% 926,85 100%

Aug-13Jul-13Dec-12 Jun-13Dec-09 Dec-11 10-Sep-13Dec-10

9,67 13,88

(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)(0,93)

(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

Jun-1

1Jul

-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-1

2Fe

b-1

2Ma

r-1

2Ap

r-1

2Ma

y-1

2Jun

-12

Jul-1

2Au

g-1

2Se

p-1

2Oc

t-1

2No

v-1

2De

c-1

2Jan

-13

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-1

3Jul

-13

Aug

-13

10-Se

p-1

3

Capital Inflows Capital inflows over total foreign holders

Foreign Investor Activity

Net Buyer (Seller) - Non ResidentForeign Ownership - Proportion by Tenor[In IDR Trillion]

14

Foreign investors mostly dominated by real money long term investors

Capital outflow month to date is amounted IDR 18.59 Trillion lower than capital outflow in Sept 2011 (European Crisis) amounted IDR29.29 Trillion

4% 10% 12% 8% 4% 4%5%

5% 8%3% 6% 6%

20%18%

17%16% 15% 15%

22%21%

25%28% 35% 35%

49% 46% 38% 45% 40% 40%

19%

30,53% 30,80%32,98%

30,64% 30,54%

0%

20%

40%

0%

20%

40%

60%

80%

100%

Dec-09 Dec-10 Dec-11 Dec-12 Aug-13 10-Sep-13

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

0,00

5,00

10,00

15,00

20,00

25,00

0,00

50,00

100,00

150,00

200,00

250,00

300,00

350,00

Jan-0

8

Jun-0

8

No

v-08

Ap

r-09

Sep-0

9

Feb-1

0

Jul-1

0

De

c-10

Ma

y-11

Oct-1

1

Ma

r-12

Au

g-12

Jan-1

3

Jun-1

3

Nominal amount of bonds held by foreign investors (LHS)

10-year domestic government bond market (RHS)

10 Y Gov Bonds Yield and Foreign Ownership Movement During Crisis

Catatan :

* During September to December 2008 ** During August to September 2011*** During 1 February s.d. 1 June 2012

In September 2011, foreign investors pulled out from domestic government bond market in bigger volume than in September 2008. However, the impact on the benchmark domestic government yield was much less pronounced.

15

5 Sept 2008: Foreign Ownership IDR108.4trn (20.0%)

Subprime Mortgage Crisis

10 Maret 2009: Foreign Ownership IDR78.7trn (14.5%)

13 Sept 2011: Foreign Ownership IDR249.2trn (35.9%)

29 Sept 2011: Foreign Ownership IDR229.1trn (32.9%)

European sovereign debt concerns

13 Feb 2012: Foreign Ownership IDR236.4 trn (31.80%)

YearsLowest

Yield (%) Highest

Yield (%) Difference

(%)11,246 20,955 9,71

(6 Agsts 2008) (27 Okt 2008)6,454 7,647 1,19

(9 Sept 2011) (22 Sept 2011)5,02 6,53 1,51

(9 Feb 2012) (16 May 2012)

2008 *

2011 **

2012 ***

As of Sept 10, 2013

5,20

5,60

6,00

6,40

6,80

7,20

7,60

8,00

8,40

8,80

9,20

270,00

280,00

290,00

300,00

310,00

03-Jun-1305-Jun-1307-Jun-1309-Jun-1311-Jun-1313-Jun-1315-Jun-1317-Jun-1319-Jun-1321-Jun-1323-Jun-1325-Jun-1327-Jun-1329-Jun-1301-Jul-1303-Jul-1305-Jul-1307-Jul-1309-Jul-1311-Jul-1313-Jul-1315-Jul-1317-Jul-1319-Jul-1321-Jul-1323-Jul-1325-Jul-1327-Jul-1329-Jul-1331-Jul-1302-A

ug-1304-A

ug-1306-A

ug-1308-A

ug-1310-A

ug-1312-A

ug-1314-A

ug-1316-A

ug-1318-A

ug-1320-A

ug-1322-A

ug-1324-A

ug-1326-A

ug-1328-A

ug-1330-A

ug-1301-Sep-1303-Sep-1305-Sep-1307-Sep-1309-Sep-13

Nominal amount of bonds held by foreign investors (LHS)10-year domestic government bond market (RHS)

The Government Proactive Effort

16

MoF & Central Banks is coordinating on market stabilization

Government Debt Buy Back on June 10th IDR 0,496 Tr

Government Debt Buy Back on June 13th IDR 0,499 Tr

Government Debt Buy Back on June 20th IDR 0,5Tr

Government Debt Purchase by Central Banks onJune 12th 2013IDR 1.2 Tr

As of Sept 10, 2013

The Government Proactive Effort

17

1. Improve the communication between the market player and stake holders of Government Debt Market by doing investor conference call on Thursday, June 13th 2013

2. Government Debt Buy Back on:• June 10th, 2013 - IDR496,9 bio• June 13th 2013 - IDR499,5 bio • June 20th 2013 - IDR500 bio

3. Activate Government Debt Securities mitigation crisis through Bond Stabilization Framework (BSF), by hold a meeting within stakeholders, vice ministry of finance II, and secretariate ministry of state enterprises on Thursday, June 13th 2013.

4. Daily monitor on Government Debt Market and yield movement.

5. Coordination on financial stability system.

Ministry of Finance (Mof) Central Banks (BI)

1. Increase deposit facility interest rate for 25 bps to be 4,25% start from June 12th, 2013.

2. Increase BI Rate for 25 bps to be 6,00% on June, 13th,2013.

3. Purchasing on secondary market through auction in June 12th, 2013 in the amount of IDR 1,2 trillion.

Deposit Insurance Company (LPS)

1. Increase guaranteed deposit interest rate to be 5,75% for Rupiah and 1,25% for foreign exchange on commercial banks

2. Increase the deposit interest rate for rural banks to be 8,25%.

Government Securities Market Prospects in 2013

Government Debt Securities Prospect on 2013

19

1. With the additional target of issuance on Revised Budget 2013, there is an opportunity for the market player to allocate their portfolio on Government Debt on a relative high return comparing to the first semester 2013. Although there’ some risk triggered by external factor such as the QE ending facility that brings the raise on UST, inflation expectation as an impact of the subsidied fuel hike and the exchange rate weakness.

2. The correction yield is deep and estimated had reach the bottom. It is a good opportunity for local and foreign investor to invest on Govenrment Securities.

3. The insurance and pension fund investible asset allocate for Government Debt Securities is relatively low there still more room for investing on Government Debt Securrities.

4. The Government is pro active on developing and maintaining the market stability together with the regulator (BI, OJK dan LPS).

5. Building an intensive communication with the market player in order to deliver the policy responsively.

6. Central Bank (BI) is using Government Securities as monetary tools and will gradually building stock on the government debt and reduce the SBI ownership as mandated on the State Treasury Law.

7. There are policy and initiatives regarding obligation to invest on Government Debt , among others: Basel III application

Capital Equivalency Maintained Assets (CEMA) Application Central Banks on Foreign Banks

The Establishment of Badan Penyelenggara Jaminan Sosial (BPJS) yang terdiri dari BPJS Kesehatan (instrumen SBN jangka pendek) dan Ketenagakerjaan (instrumen SBN jangka panjang).

END OF PRESENTATION

Directorate General of Debt ManagementMinistry of Finance of Republic of Indonesia

Directorate of Government SecuritiesFrans Seda building, 4th floor,Jl. Wahidin Raya No. 1, Jakarta Pusat – Postal Code: 10710Phone: +6221 3810175Fax. : +6221 3846516Site: www.djpu.depkeu.go.id