Foreign Government Securities Issuances: Indonesia Case Herman Sary Tua 2018 Asian Regional Public Debt Management Forum
Outline 2 FX Bond Statistics Debt Strategy & The Objectives of International Bonds Issuance Milestone Government Securities Issuance Plan for 2018 Issuance Process Case Studies
Foreign Debt Statistics A Snap Shot Foreign Government Debt Statistics as of April 2018 3 Nominal (USD Billions) 2013 2014 2015 2016 2017 2018 Foreign Government Securities 32.77 36.71 47.76 57.07 63.01 54.23 USD 31.29 34.19 43.19 48.49 51.45 48.85 JPY 1.48 1.30 2.12 3.05 4.04 4.17 EUR - 1.22 2.46 5.53 7.52 1.21 Foreign Loan/Credits 58.43 54.21 54.43 54.31 54.49 55.35 USD 25.48 26.79 30.17 31.98 32.31 32.98 JPY 21.35 17.33 15.68 14.67 13.89 14.00 EUR 5.83 5.03 4.24 3.88 4.52 4.76 OTHERS 5.76 5.05 4.34 3.78 3.76 3.61 Total Foreign Debts 91.19 90.91 102.20 111.38 117.50 109.58 Domestic Debts 103.69 118.80 127.23 150.28 173.21 191.68 Total Debts 194.89 209.71 229.43 261.66 290.70 301.26 From 2013 to 2017, the outstanding of Foreign Government Securities increased significantly, while Government Loans/Credits relatively unchanged
Debt Strategy 4 Composition Currency 2018 2019 2020 2021 IDR: Min 75% Foreign Currency: Average 25% Remain flexible subject to market condition 2018 2019 2020 2021 Range Considerations Interest Rate Fix 95% 91% 92% 95% ±1% Variable 5% 9% 8% 5% Prioritize domestic debt sources to develop a deep, liquid and active Government Bonds market Diversify Debt instruments, subject to market condition Foreign Denominated Debts are complimentary 1 2 3 Tenor 2018 2019 2020 2021 Medium-Long term (>3y): 66,0% (+1,0) Short term (<3y): 34,0% (+1,0) Objectives of issuing Foreign Denominated Bonds: (i) Financing government budget, (ii) Setting a new benchmark in the international capital markets (iii) Diversifying government s funding sources and investors base (iv) Promoting Indonesia s potentials and recent achievements in the international capital market
International Bond Milestone 5 Debt Management Office established Govt. Debt Securities Law enacted 1 st Global Bond Issuance 2015 1 st issuance Pre-funding 1 st issuance of Samurai Unguaranteed Bonds 1 st issuance of domestic USD Bond 2001 1 st issuance of Euro Bonds 1 st Samurai Bond Issuance through Public Offering 2002 2004 2014 1 st issuance of Samurai Bond Green Sukuk Issuance 2010 2009 Samurai Bonds Issuance through Shelf Registration 1 st Global Bond Issuance through GMTN Program 2016 2017 1 st SEC- Registered format Issuance (USD) 2018 SEC Dual Currency Issuance (Eur & USD) SEC-Shelf filed Indonesia have successfully registered/filed SEC-Shelf and Samurai Bonds Shelf Registration. This means that Republic of Indonesia can enter the market, through SEC-Shelf take down or via Samurai Bonds Issuance at any time
Government Securities Issuance Plan for 2018 6 Q1 Q2 Q3 Q4 Foreign Currency: Conventional Bonds (USD4 bio) Foreign Currency: Global Sukuk Foreign Currency: Samurai Bonds Foreign Currency: Dual Currency Bonds Retail: Sukuk Retail: Conventional Bonds (Online Retail ) Retail: Conventional Bonds Domestic Currency: Auction & Non-Auction Domestic Currency : Auction & Non-Auction Domestic Currency : Auction & Non- Auction Domestic Currency : Auction & Non- Auction With the target of issuance increased amid the challenging market condition, flexibility of the Issuance plan is a must. For instance, Global Sukuk issuance was moved from April to February and Dual Currency Bonds from June to April
International Bonds Issuance Process 7 Preparation Selection Documentation Execution Technical proposal evaluation MoF Decision Selection Committee Request For Proposal and Terms Of Reference Beauty Contest Fee Negotiation Appointment of Panel Members Short Request for Proposal Appointment of Joint Lead Manager and Legal Counsel Offering circular Listing requirement Legal document Rating confirmation Due dilligence Proofread (optional) Roadshow (optional) Bring down due dilligence Pricing Settlement Listing Signing Closing Engagement Letter Panel was established not only to accelerate the selection process for the next issuance, but also served as the second opinion during the pricing process
Pricing Process 8 JLMs - Market Update - Pricing recommendation ROI - Make Owner Estimate/Pricing - Compare with Pipeline/peer group transaction(s) Go/No Go Decision Final Price Guidance Panel Pricing quotation for second opinion Strategy: 1. Pipeline (peer group) comparison. Compare also with the pricing from Panel members. 2. Non-deal Roadshow (deal may follow), to prevent cornering from market 3. Timing/sequence of announcement adjustment. I.e. for dual currency, USD announced first during Asia open, and later in the European open, the Euro properly announced
Case Study USD Global Bonds 2017 (SEC-Registered) Investor Breakdown by Region 22% 21% Europe USA 14% 40% 25% RI0123 20% 1% RI0148 65% 12% 10% RI0128 48% 22% Asia (ex-indonesia) Indonesia Issuer Republic of Indonesia Series RI0123 RI0128 RI0148 Issuer Rating Issue Rating Baa3 (Moody s) / BBB- (S&P) / BBB- (Fitch) Baa3 (Moody s) / BBB- (S&P) / BBB- (Fitch) Pricing Date December 4, 2017 Settlement Date December 11, 2017 Maturity January 11, 2023 January 11, 2028 January 11, 2048 Size USD$1.00bn USD$1.25bn USD$1.75bn Tenor 5yr 10yr 30yr Coupon (p.a.) 2.950% 3.500% 4.350% Re-offer Yield 3.000% 3.550% 4.400% Re-offer Spread 85.6 bps 117.6 bps 163.3 bps Format Listing SEC-Registered Standalone Singapore Stock Exchange and Frankfurt Stock Exchange 19% 32% Investor Breakdown by Investor Type 10% 47% 2% 8% RI0123 26% 0% 2% RI0128 10% 27% Asset / Fund Manager Banks Insurance /Pension Funds 54% 0% 4% RI0148 59% Private Banks Sovereign Wealth Funds 9 Some achievements of Indonesia s International Bonds issuance with SEC-Registered format: 1. Lowest re-offer spread for 5yr, 10yr, and 30yr tenors, with the final order book of issuance totaling USD9.93 billion of 715 bookings; 2. Lowest yield for 5yr and 30yr tenors; 3. New issue concession negative with total transaction USD4 billion - the largest for the issuance of Government bonds in the Asian region; 4. Flattest curve ever between 5yr, 10yr, and 30yr tenors.
P P P Republic of Indonesia s inaugural SEC Shelf takedown At MS+115bps (1.750%), the EUR tranche represents the lowest-ever EUR cost of funding for the Republic The transaction achieved the sovereign s funding objectives with limited New Issue Concessions 5bps on the EUR and 10bps USD tranches Case Study SEC-Registered Shelf EUR1bn 7-Year & USD1bn 10-Year Issuance 10 Pricing Date: 17 April 2018 Issuer: Issue Rating: Issue: Format: Republic of Indonesia Baa2 (Moody s) / BBB- (S&P) / BBB (Fitch) Senior Unsecured, Fixed Rate Notes SEC-registered Settlement Date: 24 April 2018 Currency: EUR USD Tenor: 7-year 10-year Maturity Date: 24 April 2025 24 April 2028 Tranche Size: EUR1bn USD1bn Benchmark Yield: 0.630% (MS) 2.816% (UST) Spread to Benchmark: MS+115bps UST+131.4bps Re-offer Yield: 1.780% 4.130% Coupon: 1.750% 4.100% Listing: Terms: SGX-ST, Frankfurt Stock Exchange USD200k/1k denoms, New York law Transaction Highlights Capitalizing on the positive tone following Moody s upgrade of the sovereign rating to Baa2 from Baa3 on 13 April 2018, the Republic launched the USD tranche on 16 April 2018 Asia morning and the EUR tranche on Europe open Started at 4.40% area Initial Price Guidance, the USD1bn 10-year tranche was eventually priced at 4.13%, representing a 27bps compression from start to finish Similarly, the EUR1bn 7-year tranche was launched at MS+137.5bps area and compressed 22.5bps to price at MS+115bps Total orderbook was 2.9x oversubscribed at Final Price Guidance, with EUR3.0bn orders on the EUR tranche and USD2.7bn orders on the USD tranche Diversification of investor base 179 total accounts on the EUR tranche and 136 accounts on the USD tranche Breakdown of Distribution by Geography Breakdown of Distribution by Investor Type Rest of Europe 11% Switzerland 4% Italy 13% France 5% EUR 7-year US 7% Germany 17% Indonesia 12% Asia ex- Indonesia 15% UK 16% Indonesia 7% Europe 19% Asia ex- Indonesia 24% USD 10-year US 50% Insurance / Pension 11% EUR 7-year Asset Managers 61% Insurance / Pension 16% USD 10-year Banks 23% Central Banks / SWFs 4% Private Banks 1% Banks 15% Central Banks / SWFs 18% Private Banks 1% Asset Managers 50% 8
Summary Terms of Offering Obligor Issuer Issuer Rating Exp. Issue Rating Instrument Format. Status Aggregate Size Case Study Green Sukuk Issuance USD3 bn Trust Certificates due 2023 and 2028 11 The Government of the Republic of Indonesia, represented by the Ministry of Finance Perusahaan Penerbit SBSN Indonesia III Baa3 Moody s (Positive) / BBB- S&P (Stable) / BBB Fitch (Stable) Baa3 Moody s / BBB- S&P / BBB- Fitch USD Wakala Trust Certificates ( Sukuk ), issued under a USD25 bn Trust Certificate Programme 144A / RegS registered, senior unsecured 5-year USD3,000 mm 10-year Maturity Mar 1, 2023 Mar 1, 2028 Tranche Size USD1,250 mm USD1,750 mm Profit Rate 3.750% p.a. (30/360) 4.400% p.a. (30/360) Reoffer Price / Yield 100.000 / 3.750% 100.000 / 4.400% UST Benchmark (Price / Yield) 2.375% 01/31/23 (98-22¾ / 2.655%) 2.750% 02/15/28 (98-16+ / 2.923%) Reoffer Spread +109.5 bp +147.7 bp Use of Proceeds General financing requirements in line with the Green Bond and Green Sukuk Framework General financing requirements External Reviewer CICERO second party opinion ㄧ Other Terms USD200k/1k denominations, English and Indonesia law, Singapore and NASDAQ Dubai listing Transaction Highlights Issued in February 22, 2018 in the very first debut in green offering format First-ever green sukuk offering by any sovereign globally First USD sovereign green offering, in either sukuk or conventional formats Accessed a window of relative stability without any competing supply for aggregate size of USD3 bn, which remains to be the largest sukuk offering by a non-gcc issuer to-date Maximized green structure and full investment grade ratings to set all-time low spreads to U.S. Treasury for any sukuk offering by the Republic of Indonesia Set the flattest curve between any 5- and 10-year sukuk offering by the Republic, at 65 bp Over USD7 bn of demand at pricing, featuring sponsorship from investors of the highest quality, green focused funds and sovereign-related entities inclusive Demand and Allocation Statistics 5-year Green Sukuk 10-year Sukuk Indications / Book Cover USD3,000 mm / 2.4x USD4,200 mm / 2.4x Allocations USD1,250 mm USD1,750 mm Number of Accounts 145 165 Allocations by Geography Allocation by Type 10% 32% 10% 24% 18% 22% Islamic Asia EU US Indonesia Asset Manager / Fund Manager Bank Pension Fund / Insurance SWF / Central Bank Private Bank Green Non Green 1% 20% 10% 15% 29% 40% 71% 25% 29% 32% 7% 1% 6% 39% 12% 47%
Case Study May 2018, JPY 100bn Samurai Bonds Issuer Republic of Indonesia April 2018 12 Issuer Ratings Baa2(Moody s)/bbb-(s&p)/bbb(fitch)/bbb(r&i)/bbb(jcr) Format Samurai Bonds Type of Notes Senior Unsecured Bond Ratings Baa2(Moody s)/ BBB-(S&P)/ BBB(Fitch) Pricing Date May 24, 2018 Settlement Date May 31, 2018 Total Issue Amount JPY 100.0bn Series #4 #5 #6 #7 Tenor 3yr FIX 5yr FIX 7yr FIX 10yr FIX Tranche Size JPY 49.0bn JPY 39.0bn JPY 3.5bn JPY 8.5bn Coupon 0.67% 0.92% 1.07% 1.27% Re offer Spread YSO+55bp YSO+75bp YSO+85bp YSO+95bp Issuer United Mexican States Issuer Rating Moody s: A3 / S&P: BBB+ / Fitch: BBB+ / JCR: A- Format Samurai Bond Format Pricing Date April 12, 2018 Total Issue JPY 135 billion Tenor 5-Year Fixed 7-Year Fixed 10-Year Fixed 20-Year Fixed Maturity Date 04/20/2023 04/18/2025 04/20/2028 04/20/2038 Tranche Size 57.2 billion 24.1 billion 38.7 billion 15 billion Coupon 0.60% 0.85% 1.05% 2.00% Spread YOS+45 bps YOS+65 bps YOS+75 bps YOS+133 bps Following their first public offering in Samurai format in May last year, Republic of Indonesia (RoI) has tapped the Samurai market in public format again. The bond was issued using Japanese Shelf Registration scheme for the first time. The Samurai offering represents RoI s second successful public Samurai offering, and for the Samurai offering this time, RoI was able to add 10yr tranche for the first time in its Samurai offering(june 2017 Samurai offering was with 3/5/7yr tranches), which proved the RoI s strong presence and recognition in the Japanese market. Key Notes 1. Ever since the first issuance of Samurai Bonds, Republic of Indonesia always look at the peer group s performance, i.e Mexico 2. When Mexico successfully issued Samurai Bonds through Public Offering, Republic of Indonesia (ROI) also issued Samurai Bonds through Public Offering. This is simply because ROI wanted to have a better/wider coverage of Investor as well as the increase of financing needs 3. This year, when the market was volatile, Mexico was able to issue yet another 135 billion of Samurai Bonds. This achievement also gives confidence to Indonesia to issue 100 billion of Samurai Bonds
THANK YOU Directorate of Government Debt Securities Directorate General of Budget Financing and Risk Management Ministry of Finance of the Republic Indonesia Gedung Frans Seda Lantai 4 Jl. Wahidin Raya No. 1, Jakarta Pusat Kode pos: 10710 Call Center: Call Center: 3505052 ext. 30 Fax. : (021) 3846516 Email: surat.utang.negara@kemenkeu.go.id sbn-ritel@kemenkeu.go.id Site: www.djppr.kemenkeu.go.id www.kemenkeu.go.id/sbr Instagram: @djpprkemenkeu Twitter: @DJPPRkemenkeu Facebook: DJPPR Kemenkeu 13