ANNUAL DEBT FINANCING STRATEGY · To strengthen the function of Investor Relations Unit, among...
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MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA Directorate General of Debt Management ANNUAL DEBT FINANCING STRATEGY 2015 UNOFFICIAL TRANSLATION
Transcript of ANNUAL DEBT FINANCING STRATEGY · To strengthen the function of Investor Relations Unit, among...
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Directorate General of Debt Management
ANNUAL DEBT FINANCING STRATEGY 2015
UNOFFICIAL TRANSLATION
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TABLE OF CONTENTS
Preface ........................................................................................ i Table of Contents ........................................................................... ii List of Tables ................................................................................ iii Background .................................................................................. 1 Objectives dan Scopes ...................................................................... 1 General Debt Financing Strategies ....................................................... 2 Macroeconomic and Financial Market Conditions ..................................... 2 Budget Financing Needs 2015 ............................................................ 3 1. Cash Financing Strategy ................................................................ 5
1.1. Rupiah Denominated Domestic Financing ........................................ 5 1.1.1. Issuance of Domestic Government Securities ........................ 4
1.2. Foreign Financing .................................................................... 9 1.2.1. Issuance of Foreign Currency Denominated Securities .............. 9 1.2.2. Disbursement of Program Loans ........................................ 9 1.2.3. Financing Flexibility ..................................................... 10 1.2.4. Contingent Loan Facility ................................................ 10
1.3. Portfolio Management............................................................... 11 1.3.1. Debt Switching ........................................................... 11 1.3.2. Debt Buyback ............................................................. 11
2. Project Financing Strategy ............................................................. 11 2.1. Project Loans from Foreign Creditors ............................................ 11 2.2. Domestic Loans ...................................................................... 12 2.3. Project Based Sukuk ................................................................ 13
3. Risk Indicators ............................................................................ 14 3.1. Interest Rate Risk. ................................................................... 14 3.2. Refinancing Risk ..................................................................... 14 3.3. Exchange Rate Risk ................................................................. 14
4. Expected Debt Portfolio In The End Of 2015 ...................................... 15 List of Appendixes:
Appendix 1: Budget Financing of 2015 ................................................... 17 Appendix 2: Government Securities Portfolio 2010 - 2014 ............................ 18 Appendix 3: Loans Portfolio 2010 - 2014 ................................................. 19 Appendix 4: Applicable Formulas for Portfolio Risks Computation ................... 20
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LIST OF TABLES
Table 1 Indonesia Macroeconomic Assumptions ..................................... 3 Table 2 Budget Financing Needs of 2015 ............................................ 4 Table 3 Source of Budget Financing ................................................... 4 Table 4 Issuance of Domestic Government Securities through Auction ......... 5 Table 5 Retail Bonds Issuance 2012-2015 ............................................ 8 Table 6 Disbursement Plan of Program Loans ........................................ 10 Table 7 List of Projects of 2015 Budget .............................................. 12 Table 8 Disbursement Plan of Domestic Project Loans ............................. 13 Table 9 List of Projects Financed by PBS scheme ................................... 13 Table 10 Risk Indicator Targets for Debt Financing of 2015 ........................ 15 Table 11 Expected Risks Indicators in the end of 2015 .............................. 15
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ANNUAL FINANCING STRATEGY 2015
BACKGROUND
Indonesia’s economy in 2015 is expected to recover from its slowing down in 2014.
One of the growth factors will be the government spending as stipulated on Law
Number 27 Year 2014 on State Budget for 2015. The Budget sets revenue targets and
allocation of expenditures, as well as financing targets. The Financing for 2015
Budget is dominated with debt which comes mainly from domestic sources, especially
from issuance of government securities.
Fulfilling the 2015 financing target will be quite challenging given the large amount of
target and unfavorable domestic and global market conditions. Reduced liquiduty in
domestic market as a result of the current Bank Indonesia’s tight monetary policy is
expected to continue during the firs half of 2015. This condition may get better if the
current account, inflation and the rupiah are improving.
In general, global economy except the United States (US) has remained sluggish,
except for economy which is estimated to recover. It is therefore important to keep a
close look at the possibility of interest rates increase in the US in the Q-2 2015 driven
by an increase in Fed Funds Rate. The increase will affect domestic market liquidity
due to the potential capital outflow from domestic to the US market and the
potential yield increase of USD-denominated government securities.
Major economies outside the US have not recovered yet; sluggish growth is estimated
in Euro Zone and Japan, while China's economy will also continue to slow down. The
condition will lead to lower forecasted interest rates in those areas, and trigger
potential excess liquidity as a result of quantitative easing taken by their central
banks. Consequently, the foreign capital inflows will be estimated to enter
Indonesia’s domestic financial market, especially through government securities.
Given the challenges above, a good strategy is important to meet the 2015 financing
targets. The strategy has been prepared by taking into account the existing market
conditions, the target debt portfolio indicators, as well as the amount of financing
needs.
OBJECTIVES AND SCOPES
The objectives of this annual debt financing strategy of 2015 are:
a. To fulfil budget financing needs and to refinance maturing debt at efficient cost and controllable risk, as well as to develop the domestic Government Securities market;
b. To increase financial literacy of the public by providing affordable and easily accessible financial instruments.
This strategy is prepared in view of anticipating the dynamics in the financial market conditions, and thus the strategy may be revised if there are significant changes in
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market conditions. To ensure the achievement of the objectives, the implementation of the strategy will be monitored and evaluated periodically.
This strategy is also prepared in order to translate the medium-term debt strategy into an operational strategy, which includes management of both loans and securities.
This strategy covers financing operations through cash financing from issuance of government securities and disbursements of program loans, and project based financing from issuance of Project Based Sukuks and disbursements of project loans.
GENERAL DEBT FINANCING STRATEGIES
General policies on this financing strategy are:
1. To optimize the issuance of domestic government securities to fulfill Budget financing needs and conducting the issuance of foreign currency securities as a complement;
2. To select the instruments according to the demad of the market/investors with the purpose of developing the market and conducting portfolio management;
3. To diversify the source of financing and to increase public participation (financial inclusion) through issuancce of Retail Bonds;
4. To optimize the use of external and domestic loans for budget capital expenditure;
5. To conduct active portfolio management of Government securities through, among others, debt buyback and debt-switch, in order to promote market liquidity and stability;
6. To strengthen the function of Investor Relations Unit, among others, through proactive dissemination of information, rapid and effective responses, and effective communications with investors and other stakeholders.
MACROECONOMIC AND FINANCIAL MARKET CONDITIONS
Macroeconomic assumptions used in formulating this strategy are derived from
various sources including State Budget, international institutions, and analyst
forecasts represented by Bloomberg concensus. Macroeconomic assumptions are very
important because they can give a picture of the government's fiscal condition and its
impact on financial markets, especially government securities market. For
comparison, macroeconomic assumptions for 2015 from international institutions are
provided in the following table:
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Table 1. Indonesia Macroeconomic Assumptions
Sources: 1) Law Number 27 Year 2014 on State Budget of 2015. 2) Global Economic Prospects – Forecasts: Worldbank.org (accessed December 15, 2014) 3) Economic Forecasts, ADB: Bloomberg.com (accessed December 15, 2014) 4) Economic Forecasts, IMF: Bloomberg.com (accessed December 15, 2014) 5) Economic Forecasts, OECD: Bloomberg.com (accessed December 15, 2014) 6) Economic Forecasts: Bloomberg.com (accessed December 15, 2014)
Based on the table above, Indonesia economic growth in 2015 is projected to be in the range of 5.2% - 5.8% with inflation likely under control at the level of 4.4% - 6.9%. The Rupiah exchange rate is projected at Rp11.900 per USD but subject to adjustment in the event of significant changes.
In addition, there are several external factors to be considered which can affect both domestic and international securities market. In 2015, the US economy is expected to have higher growth than in 2014, and therefore the Fed will likely begin to raise its rate (Fed Funds Rate) in Q2-2015. Market participants have responded to this possibility and the US dollar is trending up against other currencies. As the European and Asian economies are expected to remain sluggish, the European Central Bank (ECB) will likely maintain the ECB rate at a level close to zero (0%) as well as conduct quantitative easing. China will likely cut interest rate and Japan will continue with its quantitative easing reaching JPY80 trillion per year.
Domestic and international economic conditions explained above pose challenges to government debt manager in formulating the financing strategy. Decisions to be made will include determining the right composition of domestic and international debt issuance, as well as the right timing of the issuance. For international issuance in particular, the timing and amount to be issued should take into account market liquidity and cost.
Finally, the weakening economy of Europe and Asia lead to a weaker demand of commodity which impact to the decline in commodity prices, especially oil. The continuous decline in oil prices has brought the oil exporter countries such as Russia and Venezuela fell into crisis. Potential spill-over effect into emerging markets such as Indonesia should be anticipated, including the potential capital outflows from the government securities market to the safer investment instrument (flight to quality).
BUDGET FINANCING NEEDS 2015
Debt financing needs of 2015 will be amounted to IDR255 trillion or 2.29% of GDP (Appendix 1), consist of the amount utilized to finance the budget deficit and non-
Macroeconomic
Assumptions
Growth
(%)
Inflation
(%)
Exchange
Rate
(Rp/USD1)
BI Rate
(%)
Current Account
Deficit to PDB (%)
1) 2015 Budget and BI rate 5,80 4,40 11.900 7,50 -
2) World Bank 5,60 5,00 - - 2,10
3) ADB 5,80 6,90 - - 2,00
4) IMF 5,50 6,70 - - 2,90
5) OECD 5,20 6,20 - - 3,30
6) Bloomberg Consensus 5,72 6,90 12.500 7,80 2,50
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debt financing needs (government investment). Taking into account the repayment of mature debt and portfolio management necessity, the total issuance will be amounted to IDR475 trillion, as the details shown by Table 2 below.
Table 2. Budget Financing Needs 2015
*) Subject to government securities market conditions and the government's cash needs throughout 2015
The financing needs of 2015 budget will be raised from cash financing and project based financing as detailed on Table 3.
Table 3. Source of Budget Financing
*) Total gross issuance of government securities (excluding the PBS series target of Rp7 trillion) will be adjusted to the amount of financing for debt portfolio management and cash management T-bills.
In order to meet the budget financing needs of 2015 through cash financing and project based financing, this strategy is important as a guidance in achieving an optimum debt portfolio.
in trillion IDR
Budget
Budget Deficit 246
Non-debt Financing Needs (PMN) 9
Government Debt Maturing in 2015 202
Securities 136
Loans 67
Debt Portfolio Management* 3
Cash Management T-Bills* 15
Total Budget Financing Needs 475
in trillion IDR
Budget% to gross
issuance
Cash Financing 431
Gross Securities Issuance* 424
IDR Denominated Securities 338 80%
Auction 298
non-Auction 40
FX Denominated Securities 86 20%
Program Loans 7
Project Financing 44
Project Loans 40
On-Lent Loans (4)
Domestic Loans 2
Project Based Sukuk 7
Total 475
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1. CASH FINANCING STRATEGY
Cash financing strategy includes rupiah-denominated domestic financing, foreign financing, and portfolio management.
1.1. Rupiah-denominated Domestic Financing
Rupiah-denominated domestic financing will be raised through the issuance of rupiah-denominated government securities in domestic market. This is done in view of providing liquidity to the domestic government bond market, supporting the establisment of investment-oriented society, supporting the Open Market Operations of the central bank, and minimizing the exchange rate risk of the government debt portfolio.
1.1.1. Issuance of Domestic Government Securities
Issuance of government securities in domestic market is conducted in several methods including regular auctions, bookbuilding (including retail government securities), and/or private placements.
Table 4. Issuances of Domestic Government Securities Through Auction.
Note: Total Issuance is issuance of domestic government securities as listed in Table 3.
Government Securities
a. Treasury Bills
Treasury Bills (SPN) are government securities with maturity up to 12 months, no interest payments and sold at discount. SPNs are issued to provide short term instruments for the money market, and also used as a cash management tool by the government. So far, SPNs are issued with maturity of 3 months, providing benchmark rates for government floating rate bonds, and 12 months. In 2015, the Government may issue SPNs with maturities other than 3 or 12 months.
b. Government Bonds
Treasury Bonds (ON) are government securities with maturity more than 12 months and with coupon payments or zero coupon. ONs have been issued in fixed rate or variable rate. ON Benchmark series are ON series with large amount outstanding and which is actively traded, and as such they become the benchmarks for other instruments in the financial market. In 2015, the Government will issue ON benchmark series with 5, 10, 15, and 20 years of maturity with fixed interest rates. The Government will also issu non-benchmark series to provide for the needs of the investors and as a source of financing.
Series Range of Issuance Number of Auction
T-Bills 3 month 3% - 5% 12 times
T-Bills 12 month 19% - 21% 23 times
Benchmark Series
(tenor 5, 10, 15, 20 year)62% - 64% 23 times
Non Benchmark Series 0% - 1% based on necessity
Sharia T-Bills 6% - 8% 22 times
Project Based Sukuk 6% - 8% 22 times
100% 45 times
Government
Securities (SUN)
Islamic Securities
(SBSN)
Total
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Islamic (Sharia) Government Securities Islamic Government Securities or Sukuks (SBSN) are government securities issued based on Islamic principles, either in rupiah or foreign currency. Tradable SBSNs can be traded in the secondary market both in domestic and international market. The trading can be done through an exchange or over the counter (OTC). The Government also issues non-tradable SBSNs: a. SBSNs issued to specific institutional investors, especially public sector funds who
are interested to have SBSNs in their investment portfolio, and b. SBSNs which inherent to their Akad (agreement) are non-tradable.
Cash based SBSNs for general budget financing consists of: Sharia Treasury Bills Sharia Treasury Bills (SPN-S) are Government Islamic securities with less than 1 year maturity and sold as a discount instrument. In 2015 the Government will regularly issue 6-month SPN-S. SPN-S of other maturities will be allocated for private placements. Sharia Treasury Bonds Sharia Treasury Bond (SBSN) are Government Islamic securities with more than 1 (one) year maturity. They consist of: a. Islamic Fixed Rate.
Islamic Fixed Rate (IFR) are SBSN series issued in the domestic primary market with the underlying of State-Owned Assets (BMN), sold to high scale investors. IFRs were issued in 2008 by bookbuilding and and have been issued by auctions since 2009. The IFRs are tradable with fixed profit-sharing. The Government are not planning to issue IFRs in 2015.
b. Project Based Sukuk. Project Based Sukuk (PBS) are SBSN series with fixed profit-sharing and use government projects as the underlying transaction. PBS are intended to finance specific activities undertaken by Ministries/Agencies under Government Regulation No. 56 Year 2011 on Project financing through the Issuance of Sharia Securities. In 2015, PBS series will be issued through regular auctions.
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Issuance of Retail Government Securities
Retail Government Securities are government bonds issued to individual investors or individual Indonesian through sales agents with predetermined minimum and maximum volume of sales in the primary market. Retail bonds are issued with short maturities between 3 to 4 years and monthly coupon payments. The objective of issuance of Retail bonds is to increase public participation in financing the state budget and to facilitate the public to invest in government securities.
In 2015, Retail Government Securities will be offered in two (2) instruments, Conventional Retail Bonds (ORI) and Islamic Retail Sukuk (SUKRI). The amount of Retail bonds issued since 2012 dan the plan for 2015 are given in Table 5.
Bidders of Sharia Securities of 2015
Bidders for Sharia Securities primary market auction are consisting of 15 (fifteen) Banks and four (4) Securities Companies. Bidders have an obligation to make bids in the auction. List of Sukuk Bidders as follows: 1. Citibank N.A 2. PT. Bank Central Asia, Tbk 3. PT. Bank CIMB Niaga, Tbk 4. PT. Bank International Indonesia,
Tbk 5. PT. Bank Mandiri (Persero), Tbk 6. PT. Bank Negara Indonesia
(Persero), Tbk 7. PT. Bank Negara Indonesia
Syariah 8. PT. Bank OCBC NISP, Tbk 9. PT. Bank Permata,Tbk 10. PT. Bank Rakyat Indonesia
(Persero), Tbk 11. PT. Pan Indonesia Bank ,Tbk 12. Standard Chartered Bank 13. The Hongkong and Shanghai
Banking Corporation Limited 14. Deutsche Bank AG 15. JP Morgan Chase Bank N.A 16. PT. Bahana Securities 17. PT. Danareksa Securities 18. PT. Mandiri Securities 19. PT. Trimegah Securities, Tbk
Primary Dealers of Government Securities of 2015
Bidders for Conventional Government Securities auction are Primary Dealers consisting of fifteen (15) Banks and four (4) Securities Companies, Bank Indonesia and Indonesia Deposit Insurance Company (LPS). Investors who will purchase on the primary market have to make bids through the Primary Dealers. Primary Dealers have obligation to win a certain portion of the Auction and to conduct market making on the secondary market. List of Primary Dealers as follows: 1. Citibank N.A 2. Deutsche Bank AG 3. HSBC 4. PT. Bank Central Asia, Tbk 5. PT. Bank Danamon Indonesia, Tbk 6. PT. Bank International Indonesia,
Tbk 7. PT. Bank Mandiri (Persero), Tbk 8. PT. Bank Negara Indonesia
(Persero), Tbk 9. PT. Bank OCBC NISP, Tbk 10. PT. Bank Panin,Tbk 11. PT. Bank Rakyat Indonesia, Tbk 12. PT. Bank Permata,Tbk 13. PT. Bank CIMB Niaga, Tbk 14. Standard Chartered Bank 15. JP Morgan Chase Bank N.A 16. PT. Bahana Securities 17. PT. Danareksa Securities 18. PT. Mandiri Securities 19. PT. Trimegah Securities, Tbk
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Table 5. Retail Bonds Issuance 2012-2015
*) The indicative target of each retail instrument can be adjusted in accordance
with the investors interest and the government's financing needs.
ORI has been issued for 12 times with minimum purchase of IDR5 million and maximum IDR3 billion. Since ORI009, ORI has been offered with Minimum Holding Period feature in which the owner can not transfer the ownership of ORI from the date of issuance until the first interest payment date. In 2015, the Government will offer ORI012 series.
Retail Sukuks are SBSN that are sold to individual Indonesian. Retail Sukuks were first issued in 2009 and has been issued for six times. The minimum purchase limit of Retail Sukuk is IDR5 million and since the SR004 issuance in 2012, the maximum purchase limit of IDR5 billion has also been applicable. In 2015, the Government will offer SR007 series with Minimum Holding Period features for 1 (one) month, as has been imposed on the issuance SR006 series in 2014.
Saving Bonds are retail bonds that can not be traded and issued by the Government through the Banking and Securities Companies. The Government has no plan to issue Saving Bond in 2015.
Private Placement
Private placement is the issuance of government securities to the investors, with certain terms and conditions as agreed on the agreement, in the form of tradable and non-tradable securities.
Private placement denominated in Rupiah is done through Primary Dealers/ Bidders except for Bank Indonesia, LPS, Public Service Agencies (BLU in Indonesia abbreviation), and Local Governments.
The purpose of private placements are to facilitate investors who require placement in government securities with specific terms and conditions that are not offered in regular auctions.
Several private placements conducted by the Government include:
Indonesian Sukuk Hajj Fund (SDHI) SDHIs are issued as the placement of Hajj Fund and Public Endowment Funds in Sharia Securities by the Ministry of Religious Affairs using Al-Ijarah Khadamat agreement and non-tradable in nature.
Treasury Bills (SPN) issued to Local Governments in 2009. This instrument is non-tradable and issued in order to facilitate the local government need of idle cash placement on T-bills instrument.
In 2015, the Government will open up the possibility to conduct private placement take into account the government's financing needs and investor’s interests. Private placements will be prioritized to meet the financing needs of public sector fund management institutions that require investment instruments. Moreover it will mainly denominate in rupiah, and take place in domestic market. Meanwhile, private placement in foreign currency denominated will be available only when it necessary. The target amount of private placement will be adjusted to the issuance target of
in trillion IDR
2012 2013 2014 2015*
Conventional Retail Bonds (ORI) 13 20 21 20.0
Retail Sukuk 14 15 19 20.0
Saving Bonds - - 2 -
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regular auctions, while the maturity target will take into account of portfolio risks target.
1.2. Foreign Financing
Foreign financing includes issuance of government securities denominated in foreign currency, disbursements of program loans, financing flexibility and contingent loan facility.
1.2.1. Issuance of Foreign Currency Denominated Securities
The purposes of the foreign currency denominated securities issuance are:
a. To fulfill state budget financing needs and debt refinancing as complementary to the issuance of Rupiah denominated securities.
b. To diversify financing instruments in order to manage the costs and risks level, as well as to ensure the availability of alternative sources of financing.
c. To keep the existence of Government's financial instruments in international market and maintaining its exposure to international investors as well as providing benchmarks for corporate bonds denominated in foreign currency.
d. To avoid crowding-out of domestic bond market due to high financing needs that exceed its capacity by which may impede other issuer’s market access.
In 2015, Foreign currency denominated securities will be issued in four instruments as follows:
• US Dollar denominated government securities (GMTN) • Japanese Yen denominated government securities (Samurai Bond) • Euro denominated government securities (GMTN) • US Dollar denominated Sukuk (SNI) Total issuance of foreign currency denominated securities will be limited to 20% of the gross issuance target of 2015. The schedules to issue those securities will take into account the financial market conditions such as interest rate, market liquidity and investor purchases period, as well as foreign currency needs with respect to repayments of maturing debt, while the amount to be issued will be determined based on indicative costs, potential demand, and debt portfolio risk considerations. The issuance composition will be prioritized for USD denominated (more than 50%), combined with a significant amount of Euro (more than 20%), and JPY for the remaining.
In order to broaden the Samurai bonds investor, the Government tries to reduce dependency on JBIC guarantee. Strategies that can be applied including issuance the Samurai bonds with a tenor of 3-5 years that is not guaranteed by JBIC.
1.2.2. Disbursement of Program Loans
Program loans are loans received in form of cash. The disbursement of those loans requires the fulfillment of certain conditions agreed by both parties as a set of policy matrix or implementation of specific activities.
Those specific activities that attached to program loans are currently activities funded by Special Allocation Fund for Infrastructure conducted by the local government.
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In 2015, program loans are still needed to support several government programs. The indicative amount of program loans is USD600 million or equivalent to IDR7,140 billion. The loans are from the World Bank and ADB.
To ensure the availability of the program loans for disbursement, negotiations will be conducted with the lenders and coordination will be done with line Ministries and other institutions in accomplishing the policy matrixs.
Table 6. Disbursement Plan of Program Loans
Since 2013, financing from program loans has also been used for cash financing flexibility. Withdrawals from the loans or other cash financing instruments may be upsized subject to the terms and conditions applied.
1.2.3. Financing Flexibility
Cash financing flexibility is a policy where the government can switch from one type to other types of cash financing by taking into account the cost of the instruments, wich one is more beneficial. In the event of deterioration in the government securities market or a failure in financing through program loans, the Government is allowed to utilize other cash financing such as syndicated loans from banks. In 2015, cash financing flexibility will be available in the form of additional program loans, standby loan and/or commercial loans by considering its cost and withdrawal easiness.
In the midst of vulnerable government securities market condition associated with changes in large country’s policy such as the United States, and limited source of program loans from multilateral and bilateral lender, the Government is preparing an alternative source of financing in the form of cash loans from private foreign creditors. Moreover, the government will attempt to set up the facilities needed to support the plan.
1.2.4. Contingent Loan Facility
In accordance with Law Number 27 Year 2014 on State Budget of 2015. Article Number 30 paragraph 1 stipulates that under any emergency situation, such following circumstances are occurred: economic growth forecast falls below the assumption and deviation of the other macroeconomic assumptions that cause a significant decrease in state revenue, and/ or the increase of state expenditures; financial system fails to function effectively in the national economy; and/or the significant increase in cost of debt, especially the yield on government securities, the Government under the Parliament approval is able to incur additional debt from standby loans from bilateral and multilateral lenders and/or issuance more government securities.
in billion IDR
2015 Budget
1. World Bank 3,570
2. ADB 3,570
Total 7,140
equivalent in million USD 600
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Article 30 paragraph 2 mentions that in those emergency situations, the Government can withdraw standby facilities from bilateral and multilateral creditors an alternative sources of financing in the case that market condition is not conducive for government securities issuance.
The standby loan facilities available until the end of 2014 are in the amount of USD5 billion. The loans are from the World Bank, Asian Development Bank (ADB), Japan Bank for International Cooperation (JBIC) and the Government of Australia.
1.3. Portfolio Management
In 2015, portfolio management will include debt switching and buyback.
1.3.1. Debt Switching
The objectives of debt switching program are to develop SBSN market, increase liquidity of the government securities market and reduce refinancing risk. To develop SBSN market, less liquid series are exchanged with certain series in order to add stockbuilding. This addition is expected to increase SBSN trade in the secondary market.
In 2015 the Government plans to set up the necessary infrastructure for debt switching through staple bond method that is exchange a series of non-benchmark with two series of benchmarks on the same value, in order to increase liquidity of the benchmark series. For SBSNs, the plan is to implement many-to-one method by taking into account the market demand and market interest, since in 2014 it was not implemented due to low demand and interest based on the results of the survey to the SBSN Bidders.
1.3.2. Debt Buyback
Buyback program has three (3) objectives including: increasing market liquidity by purchasing illiquid series, stabilizing market to reduce price volatility, and conducting portfolio management to reduce refinancing risk and minimize idle cash.
In 2015, buyback program to increase market liquidity will be done through auctions or dealing room operations targeting illiquid series. This program will be enhanced for the purpose market deepening and idle cash management. On the other hand, buybacks for market stabilization will only be performed in the event of market turmoil and will be targeted to benchmark series. Buyback program within crisis management protocol of government securities market will be conducted according to the standard operating procedures in place.
2. PROJECT FINANCING STRATEGY
Project financing for 2015 Budget are performed through three instruments as follows: (i) Foreign Loans from Foreign Creditors (Multilateral, Bilateral and Commercial), (ii) Domestic Loans, and (iii) Project Based Sukuk.
2.1. Project Loans from Foreign Creditors
Project loans are foreign loans used to finance certain activities of Ministries/ Agencies including on-lent and/or on-grant loans to local governments and/or State Owned Enterprises (SOEs).
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Project loan disbursement plan of 2015 financed by foreign loans will be amounted to IDR39.9 trillion with details as follows:
Multilateral creditors of IDR8.7 trillion,
Bilateral creditors of IDR10.8 trillion,
Commercial creditors and Export Facility Creditors of IDR20.4 trillion
The budget amount is subject to change in line with realization and prevailing exchange rate at the time of withdrawal.
Of total project loans, some loans are on-lent to local governments and SOEs such as PT. Indonesia Infrastructure Finance (PT. SMI), PT. Pertamina, PT. Indonesia Infrastructure Guaranteed Fund (PT. PII), PT. PLN and Local Government of Jakarta, with total amount of IDR4.3 trillion, and some loans are on-grant with total amount of IDR2.7 trillion.
Procurement of projects loans from foreign creditors will take into account the priority of needs, and moreover its exposure to creditor’s interests. In addition, those loan need to be supported by certain readiness criteria before the project is implemented. Finally, optimum monitoring and evaluation is important to prevent any slow disbursement.
Table 7. List of Projects of 2015 Budget
2.2. Domestic Loans
Domestic loans are any State Government loan obtained from domestic lenders to be paid back with certain requirements, within its maturity period. Lenders of domestic loans are the state-owned banks, local government-owned banks, and local governments. Currently, the lenders are state-owned banks and local government-owned banks.
Project Name Lender 2015
Budget
1 Construction of Jakarta Mass Rapid Transit Project (I) JICA 2,583
2 Procurement of Track Material and Turn Out Phase II China 1,150
3 Railway Electrification and DD Tracking Project JICA 894
4 Western Indonesia National Roads Improvement Project
(WINRIP)
World Bank
823
5 Railway Double Tracking on Java Southline Project (III) JICA 588
6 National Program for Community Empowerment in Rural 2012-
2015
World Bank
525
7 The IDB PNPM Integrated Community Driven Development
Project Phase 3 (IDB PNPM Phase-3)
IDB
478
8 National Community Empowerment Program-Urban Areas World Bank 455
9 Regional Roads Development Project ADB 433
10 Railway Double Tracking and Signaling Improvement Solo-
Surabaya (Phase I: Solo-Paron)
China
398
31,569
39,897
Other Projects (321 projects)
Total (in billion IDR)
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Disbursement plan of domestic loan for 2015 will be amounted to IDR1.6 trillion, while principal repayments will be amounted to IDR0.3 trillion.
Until the end of 2014, domestic loans have been limited to the Ministry of Defense and the National Police in respect to “Alutsista” and “Almatsus” program. However, in the future, domestic Loans are expected to be utilized by other ministries/institutions.
In 2015, improving proactive measures will be important to deal with the slow disbursement of domestic loans. In addition, Ministries/Agencies should ensure the readiness criterias are fulfilled before the activities financed by domestic loans. Therefore, selective and careful planning, as well as coordination among parties will be essential.
Table 8. Disbursement Plan of Domestic Project Loans
2.3. Project Based Sukuk.
Project Financing Sukuk is financing scheme of specific activities/project implemented by the Ministries/Agencies through Sharia Securities issuance, as stipulated in Government Regulation No. 56 Year 2011 on Financing of Project through the issuance of Sharia Securities.
In 2015, there will be 47 projects with a total value amounted to IDR7.14 trillion financed by Sharia Securities issuance with details as follow:
Table 9. List of Projects Financed by PBS Scheme
Financing of those three projects will be implemented through regular auction of Project Based Sukuk (PBS) series. However, the nominal amount and timing of issuance will be based on the realization of the activities related to those projects, according to existing regulations.
in billion IDR
Disbursement (gross) 2,000
1. Ministry of Defense 1,500
2. National Police Department 500
Principal Payment (379)
Total 1,621
2015 Budget
in trillion IDR
MinistryContract
Amount
1 Ministry of Transportation 2.92
2 Ministry of Public Works 3.54
3 Ministry of Religious Affairs 0.68
Total 7.14
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3. RISK INDICATORS OF DEBT FINANCING
In general, risk indicators in accordance to debt financing are as follow:
3.1. Interest Rate Risk
Interest rate risk is measured by the proportion of floating (variable) interest rate debt against the total financing target amount and the total outstanding debt.
In 2015, the Government will plan to issue fixed rate government bonds while the possibility using variable interest rate will remain open only for loans.
However, the proportion of variable rate debt will remain at safe level of 20% of the total outstanding debt. In addition, the debt issued in 2015 that exposed to interest rate changes or have maturity less than one year will be capped at 22% of total gross issuance.
3.2. Refinancing Risk
Refinancing risk is measured by Average Time to Maturity (ATM) of the portion of debt maturing within one year againts the total outstanding debt.
In 2015, the ATM of debt portfolio will be targeted to 8.6 years ± 0.5 years, include the ATM of government securities issuance of 8.4 years, the ATM of Rupiah denominated issuance of 8 years and the ATM of foreign currency denominated issuance of 10 years. ATM for disbursement of program and projects loans will be targeted at 10.2 years.
The proportion of debt portfolio maturing in 1 year will be around 19%, including the government securities maturing in 1 year that will be amounted to 22% of total gross issuance, while the grace period of loans will average more than 1 year.
3.3. Exchange Rate Risk
Exchange rate risk indicator for debt portfolio of 2015 will be the share of foreign currency denominated debt out of total debt financing limited to 30%, while the share of foreign currency denominated securities out of total gross issuance limited to 20%.
15
Table 10. Risk Indicator Targets for Debt Financing of 2015
4. EXPECTED DEBT PORTFOLIO IN THE END OF 2015
Based on the Budget financing of 2015, the expectations of debt portfolio at the end of 2015 can be seen in the following table:
Table 11. Expected Risks Indicators In The End Of 2015
*) End of 2014 projection based on realization data as of November 4, 2014 and assumed
exchange rate of IDR12,000 per USD
**) End of 2015 projection based on realization 2015 Budget, and assumed exchange rateof
IDR12,000 per USD
From the table above, the expectations of the debt portfolio at the end of 2014 is inline with the target stated in the Medium Term Debt Strategy (MTDS) 2014-2017
Risks Indicators Instruments Target of 2015
Debt 9,5% - 10,5%
Securities 0% - 2%
Loans Max 100%
Debt 8,1 - 9,1
Securities 7,9 - 8,9
Loans 9,7 - 10,7
Debt Max 19%
Securities Max 22%
Loans -
Debt Max 30% of total debt
Securities Max 20% of gross issuance
Loans Max 98% to total loans
Exchange Rate Risk FX Proportion
Interest Rate Risk VR Proportion
Refinancing Risk
ATM (year)
Maturity in 1 year
Indikator Dec-13 Dec 2014* Dec 2015** MTDS '14 - '17
Outstanding (in billion IDR)
Securities 1,661,055 1,912,827 2,185,713
Loans 709,947 649,933 641,932
Debt 2,371,002 2,562,760 2,827,645
Interest Rate Risk
VR proportion 16.01% 14.49% 13.18% 11% - 15%
Refinancing Risk
ATM (years) 9.60 9.82 9.38 9 - 10
Maturing in 1 years 8.64% 7.81% 6.35% 6% - 10%
Exchange Rate Risk
FX Proportion 46.70% 42.48% 40.64% 39% - 43%
FX Rate Realization/Assumption 12,189 12,000 12,000
16
APPENDIXES
17
BUDGET FINANCING OF 2015
in billion IDR
2015 Budget % to GDP
A. REVENUES AND GRANTS 1,793,588.9
B. EXPENDITURES 2,039,483.6
C. PRIMARY BALANCES (93,926.4)
D. BUDGET SURPLUS/(DEFICIT) (245,894.7)
E. FINANCING 245,894.7 2.21
I. NON DEBT (8,961.3) (0.08)
II. DEBT 254,856.0 2.29
1. Government Securities (nett) 277,049.8 2.49
i. Gross Issuance 430,662.1 3.86
- Project Financing Sukuk Issuance 7,143.2
ii.Refinancing and Buyback (153,612.3) (1.38)
2. Loans (22,193.8) (0.20)
i. Foreign Loans (23,815.0) (0.21)
Disbursement 47,037.1 0.42
a. Program Loans 7,140.0 0.06
b. Project Loans 39,897.1 0.36
On-Lent Loans (4,319.4) (0.04)
Principal Payment (66,532.8) (0.60)
ii. Domestic Loans 1,621.2 0.01
a. GDP (billion IDR) 11,146,943.0
b. Growth (%) 5.8
c. Inflation (%) y-o-y 4.4
d. T-Bills Rate 3 month (%) 6.0
e. Exchange Rate (Rp/US$1) 11,900.0
APPENDIX 1:
18
GOVERNMENT SECURITIES PORTFOLIO 2010 - 2014
*) End of 2014 projection based on realization as of Nov 4, 2014 and assumed
exchange rate of IDR12.000/USD1
Indicators Dec-2010 Dec-2011 Dec-2012 Des-2013 Des-2014*
Outstanding (billion IDR)
Conventional Securities (SUN) 1,020,062 1,109,922 1,236,658 1,491,763 1,714,922
T-Bills (SPN) 29,795 29,900 22,820 34,050 41,950
Zero Coupon Bonds 2,512 2,512 1,263 - -
FR Bonds 440,396 517,142 610,393 751,273 945,613
VR Bonds 142,795 135,063 122,755 122,755 115,735
International Bonds 156,132 180,668 239,282 348,816 382,570
SU dan SRBI 248,432 244,636 240,144 234,870 229,054
Islamic Securities (SBSN) 44,344 77,733 124,443 169,291 189,701
Islamic T-Bills (SPNS) - 1,320 195 8,633 1,000
Islamic Fixed Rate 25,717 37,668 62,840 78,541 100,504
International Bonds 5,844 14,962 25,626 50,584 60,000
SDHI 12,783 23,783 35,783 31,533 28,197
Securities (SBN) 1,064,406 1,187,655 1,361,101 1,661,055 1,904,622
Interest Rate Risk
VR proportion 13.42% 11.37% 9.02% 7.39% 6.05%
Refixing Rate 19.53% 19.31% 15.33% 15.17% 13.19%
Exchange Rate Risk
FX Proportion 15.22% 16.47% 19.46% 24.04% 23.14%
Refinancing Risk
ATM (years) 10.54 10.37 10.84 10.61 10.76
Mac Duration (years) 7.94 7.85 8.27 8.12 8.31
Maturing in 1 years 6.68% 8.30% 6.31% 8.35% 7.14%
Maturing in 3 years 19.16% 21.34% 19.04% 19.40% 17.80%
Maturing in 5 years 30.80% 31.04% 27.80% 29.34% 30.27%
Avg. Ann. Mty in 5y 6.16% 6.21% 5.56% 5.87% 6.05%
Portfolio Indicators
APPENDIX 2:
19
LOANS PORTFOLIO 2010 - 2014
*) End of 2014 projection based on realization as of Oct, 2014 and assumed exchange
rate of IDR12.000/USD1
Dec-2010 Dec-2011 Dec-2012 Dec-2013 Dec-2014*
Outstanding (in billion USD) 68.12 68.27 63.50 58.24 53.49
Eq. in billion IDR 612,446 626,055 614,088 709,947 641,932
Exchange Rate 8,991 9,170 9,670 12,189 12,000
Outstanding based on currency (in billion USD)
- JPY 31.83 32.42 27.14 21.24 16.82
- USD 23.65 22.74 24.28 25.44 27.81
- EUR 7.19 6.78 5.94 5.77 4.33
- IDR 0.02 0.08 0.18 0.18 0.24
- Others 5.43 6.26 5.96 5.61 4.28
Outstanding based on Interest types (in billion USD)
- Fixed Rate 45.43 45.80 42.09 36.15 29.69
- No Interest 0.72 0.68 0.95 1.02 1.01
- Floating Rate 21.97 21.79 20.47 21.07 22.80
Outstanding based on Creditor types (in billion USD)
- Multilateral 23.13 22.60 23.74 23.57 23.78
- Bilateral 41.89 42.71 37.03 31.24 25.98
- Commercial 3.04 2.91 2.69 3.41 3.72
- Suppliers 0.06 0.06 0.04 0.03 0.01
Interest Rate Risk
VR proportion 32.23% 31.91% 32.23% 36.18% 42.61%
Refixing Rate 37.45% 37.85% 38.38% 42.12% 48.55%
Exchange Rate Risk
FX proportion 100.0% 99.89% 99.72% 99.69% 99.54%
Refinancing Risk
ATM (year) 7.58 7.61 7.20 7.26 7.28
Maturing in 1 years 7.70% 8.72% 9.08% 9.31% 10.34%
Maturing in 3 years 23.72% 26.10% 27.10% 27.26% 29.12%
Maturing in 5 years 39.96% 42.35% 42.60% 42.80% 47.52%
Loans Portfolio Indicators
APPENDIX 3:
20
APPLICABLE FORMULAS FOR PORTFOLIO RISKS COMPUTATION Interest Rate Risk
Variable Rate proportion (VR)
: Total Outstanding of Securities/Loans/Debts with variable interest rate
: Total Outstanding of Securities/Loans/Debts
Refixing rate risk (RFR)
: Share of Securities/Loans/Debts maturing in or less than 1 year to total Securities/Loans/Debts
: Share of Securities/Loans/Debts with variable interest rate maturing in or less than 1 year to total Securities/Loans/Debts
Average Time to Refixing (ATR)
Securities Portfolio:
Loans Portfolio:
: maturity date of i-series Securities
: current date/settlement date
: total outstanding of i-series Securities (excluding series with variable interest rate)
: total outstanding of Securities with variable interest rate (VR series)
0,125 = (3 month/12 month)/2 Exchange Rate Risk
FX proportion (FX)
Securities/Loans/Debts Portfolio:
: Total Outstanding of Securities/Loans/Debts
Refinancing Risk Average Time to Maturity (ATM)
Securities Portofolio:
Manual Formula:
Formula in MS Excel :
YEARFRAC(start_date;end_date;basis)
Loans Portofolio:
: Total outstanding of -series Securities including VR series
: Outstanding of Loans maturing in year-i
: The longest maturity year of Loans
: the number of monthremaining in current year
0,5 is first year ATM that established from the middle point of the first year
Mac Duration (D) Manual Formula:
Formula in MS Excel:
DURATION(settl_date;mty_date; coupon;yld;frequency;basis)
: Coupon : Yield (r assumed to be 0) : 2 x (Maturity date –
Settlement date) : Price
APPENDIX 4:
21
Maturity in i-yr (Mty)
: Total outstanding of
Securities/Loans maturing in or less than 1 year
DIRECTOR GENERAL OF DEBT MANAGEMENT,
ROBERT PAKPAHAN
MINISTRY OF FINANCE OF REPUBLIC OF INDONESIA
Directorate General of Debt Management Jl. Dr. Wahidin Raya No. 1 Jakarta Pusat 10710 - Indonesia
