Better Times for Bond Investors

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1 WEEKLY REPORT D E B T RESEARCH 16 SEPTEMBER - 20 SEPTEMBER 2013 Country's FCLT Rating S & P Moody's Fitch BB+ Baa3 BBB- Key Market Indicator as of BI Rate 7.25% JCI Index 4,522 IDR 11,380 Inflation(y-o-y) - Aug % Market Outstanding as of Government Bond Corporate Bond Previous Week Trading Volume Government Bond Corporate Bond IDR tn IDR tn IDR 36.95tn IDR 1.26tn Better Times for Bond Investors Based on SUN ownership as of 12 September 2013, investors are starting to become more optimistic on the rupiah. Foreign holdings of SUN rose IDR2.5 trillion from September 10 to September 13, while domestic bank SUN holdings climbed IDR7.48 trillion in the same period. In contrast to BI s holdings, the SUN holdings of foreign investors and domestic banks tended to be volatile, while the holdings of insurance, mutual funds and pension funds were more stable. In addition to the positive developments in the country, some positive sentiment has been created from global developments such as the US s decision not to strike Syria and the withdrawal of Lawrence Summers candidacy to be the next chairman of the Federal Reserve. Over the last 2 days, the yield index fell 48bps. This was on the back of higher trading volumes. Total trading over 2 days reached IDR17.18 trillion. The downtrend in government bond yields is expected to continue if the stability in the exchange rate continues. Berdasarkan data kepemilikan SUN per tanggal 12 September 2013, investor mulai optimis dengan kondisi volatilitas dan pergerakan nilai tukar Rupiah yang membaik. Kepemilikan asing tercatat mengalami kenaikan Rp2,5 triliun dari tanggal 10 September hingga 13 September, sedangkan kepemilikan bank domestik naik Rp7,48 triliun pada periode yang sama. Berbeda dengan kepemilikan BI, investor asing dan domestik bank yang bergerak cenderung volatile, kepemilikan insurance, mutual fund dan pension fund bergerak lebih stabil. Selain sentimen positif dalam negeri, beberapa sentimen positif dari global seperti pembatalan penyerangan AS terhadap Syiria dan pengunduran diri Lawrence Summers dari calon ketua The Federal Reservse menyebabkan yield indeks turun 48bps selama 2 hari terakhir. Penurunan yield tersebut diikuti juga dengan volume perdagangan yang cukup tinggi. Total volume perdagangan 2 hari kemarin sebesar Rp17,18 triliun. Tren penurunan yield obligasi Pemerintah ini diperkirakan akan berlanjut jika kondisi nilai tukar dan volatilitas rupiah terus membaik. Government Bond Indices as of Price Index Yield Index 8.17% Total Return Benchmark Yield as of FR0066 (5 year) 7.536% FR0063 (10 year) 7.964% FR0064 (15 year) 8.426% FR0065 (20 year) 8.528% Source : Bloomberg, Mid YTM IDR Trillion Foreign, Domestic Bank & BI Ownership on SUN BI (incl. Revrep) Foreign Domestic Bank 2-Jan Jan Jan-13 1-Feb Feb Feb-13 4-Mar Mar Mar-13 4-Apr Apr Apr-13 3-May May May-13 4-Jun Jun Jun Jul Jul Aug-13 2-Sep IDR Trillion Calendar of Event 19-Sep-13 US Initial Jobless Claim (Survey : 330K; Prior :292K) Source: Bloomberg, Ministry of Finance Mutual Fund, Insurance & Pension Fund Ownership on SUN Mutual Fund Insurance Pension Fund Sep-13 Japan All Industrial Activity (Survey : 0.3%; Prior : -0.6%) 20-Sep-13 Reserve Bank of India Repurchase Rate Policy Announcement (Survey : NA; Prior : 7.25%) 2-Jan Jan Jan Jan-13 6-Feb Feb Feb-13 4-Mar Mar Mar-13 1-Apr-13 9-Apr Apr Apr-13 3-May May May May Jun IDR Trillion Source: Ministry of Finance Analysts Rifki Rizal ext 3404 rifkir@danareksa.com Amir A. Dalimunthe ext.3405 amirda@danareksa.com Please read important disclosure at the back of this report Yield Index Daily Change 16-May May May May-13 3-Jun-13 7-Jun Jun-13 2 Source: Danareksa Estimates, Bloomberg 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% -0.4%

2 MACROECONOMICS CONDITION The Biggest Decline in Yields since February 2012 The government bonds yield index dropped last week to 8.44%, down 32bps from the previous week. This is the biggest week-on-week decline since February Indonesia's 5-year CDS was down 30bps from the previous week to 250bps. On September 12, Bank Indonesia raised the BI Rate by 25bps to 7.25% as inflation expectations are still high. After this, the yield index fell 48bps in two days as of 13 September Rupiah volatility declined last week although it was still relatively high. Last week the rupiah closed at IDR11,232 per US dolar, down 56points from the previous week. Yield indeks obligasi Pemerintah turun sepanjang minggu lalu dan menutup akhir minggu pada level 8,49%, atau turun 31bps dari minggu sebelumnya. Penurunan terbesar sejak Februari Penurunan yield obligasi Pemerintah diikuti dengan CDS 5-tahun yang turun 29bps dari minggu sebelumnya. Per tanggal 12 September Bank Indonesia menetapkan BI Rate sebesar 25bps menjadi 7,25% karena ekspektasi inflasi yang masih tinggi. Setelah BI rate naik, yield indeks turun 16bps pada tanggal 13 September. Volatilitas Rupiah minggu lalu turun walaupun masih relatif tinggi. Minggu lalu Rupiah ditutup di level Rp per USD, turun 56poin dari minggu sebelumnya. Total corporate bonds trading amounted to IDR1.25 trillion last week with bonds of less than 1 year maturity dominating the trading with trading volume of IDR415 billion. Total trading obligasi korporasi minggu lalu sebesar Rp1,25 triliun dengan obligasi bertenor kurang dari 1 tahun mendominasi perdagangan dengan volume sebesar Rp415 miliar. Source: Danareksa, Bloomberg Source: Ministry of Finance Yield Index 2 Yield Index (LHS) Inflation Domestic Bank Increased Their SUN Ownership 2 Corporate Bonds Trading by Tenor BI Rate Inflation Forecast 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 5.5% RR-BI (RHS) BI (RHS) Domestic Bank Foreign Investors 29-May-13 4-Jun Jun Jun-13 Source: Bloomberg Source: Bloomberg 27-Jun-13 9-Jul-13 CDS 5-Year (bps) 15-Jul Jul Jul Aug Aug-13 Rupiah closed at Rp11,232 per USD 2 Corporate Bonds Trading by Sector 4-Sep Sep Indonesia Philipinnes Brazil Turkey 75 11,800 11,500 11,200 10,900 10,600 10,300 10,000 9, Term to Maturity AA % AA 9.98% A+ 4.20% AA % A % A 13.15% AAA 2.10% BBB 0.91% BBB+ 2.14% Source: IDX Processed Data Source: IDX Processed Data 2

3 GOVERNMENT BONDS REVIEW Trade Volume Surged Demand for IDR government bonds increased last week. This is evident in the downward shift of the yield curve for all tenors last week with an average decline of 24bps. In addition, the increase in last week's trading which reached 65.6% of the previous week s trading shows that SUN remain attractive for investors. Total trading in government bonds reached IDR36.96 trillion last week, up IDR14.64 trillion over the previous week, with an average transaction size of IDR18.17 billion. The total trading in corporate bonds rose by IDR102 billion last week with an average transaction size of IDR7.56 billion. Permintaan Investor terhadap obligasi Pemerintah meningkat, hal tersebut dapat dilihat dari perubahan yield curve minggu lalu yang tertekan untuk semua tenor dengan rata-rata penurunan sebesar 24bps. Selain itu, naiknya volume perdagangan yang mencapai 65,6% dari minggu sebelumnya menjadi bukti lain bahwa SUN masih menarik bagi investor. Total volume perdagangan obligasi Pemerintah minggu lalu sebesar Rp36,96 triliun, naik Rp14,64 triliun dari minggu sebelumnya, dengan rata-rata volume setiap transaksi sebesar Rp18,17 miliar. Sedangkan total volume perdagangan untuk obligasi korporasi pada minggu lalu naik sebesar Rp102 miliar dengan rata-rata volume setiap transaksi sebesar Rp7,56 miliar. Spread Indon 10 year Over UST 10 year Spread SUN 10 year over Indon 10 year 3.4% 2.9% 2.4% 1.9% 1.4% 0.9% 7-Sep Sep Oct-12 6-Nov Nov Dec-12 5-Jan Jan Feb-13 6-Mar Mar Apr-13 5-May May Jun-13 4-Jul-13 2-Sep % 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 3.5% 3.0% 2.5% 2.0% 1.5% 7-Sep Sep Oct Oct Nov-12 6-Dec Dec Jan Jan Feb-13 6-Mar Mar Apr Apr May-13 4-Jun Jun Jul Aug-13 2-Sep % 8.0% 7.0% 5.0% 4.0% 3.0% 2.0% Risk Premium 10Y (LHS) UST 10Y INDON 10Y Govt Bonds Benchmark Series Yield Source: Bloomberg, Danareksa Estimate Daily Trade Volume FR0066-5Y FR Y FR Y FR Y 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 5.5% 5.0% 4.5% Govt Short Govt Med Govt Long Corp Sep Oct-12 2-Nov Nov Dec-12 9-Jan Jan Feb Mar-13 2-Apr Apr May May Jun Jul Aug-13 4-Sep-13 5-Sep-13 9-Sep Sep Sep-13 1 Source: US Treasury, Bloomberg, Danareksa Estimate Currency Risk Premium 10Y (LHS) INDON 10Y SUN 10Y Source: Bloomberg Source: IDX processed data Yield Curve Comparison Yield Curve Change 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 7.77% 5.19% 1.71% 6.50% 2.90% 3.25% Source: Danareksa Estimate 8.22% 8.49% 8.64% 8.76% 6.95% 7.15% 7.29% 3.59% 3.84% Term to Maturity UST YC GoI USD Yield Curve GoI IDR Yield Curve 0.00% % -0.10% -0.15% -0.20% -0.25% -0.30% -0.35% Term to Maturity Source: Danareksa Estimate 3

4 APPENDICES Last Trade Last Done Vol (IDR Tenor Modified Bonds Maturity Coupon Tenor Freq Yield Date Price Bn) Class Duration 10-Sep-13 ORI Sep < 1yr Sep-13 FR Sep < 1yr SPN Oct < 1yr IFR Oct < 1yr SPNS Oct < 1yr SPN Oct < 1yr Sep-13 SPN Nov < 1yr SPN Dec < 1yr FR Dec < 1yr SPNS Jan < 1yr SPNS Jan < 1yr SR Feb < 1yr Sep-13 SPNS Mar < 1yr SPN Mar < 1yr SPN Apr < 1yr SPN May < 1yr 0.64 FR May < 1yr Sep-13 SPN Jul < 1yr Sep-13 FR Oct yr - 5yr ORI Oct yr - 5yr Sep-13 VR Dec yr - 5yr Sep-13 VR Apr , yr - 5yr FR Jun yr - 5yr SR Sep yr - 5yr ORI Oct yr - 5yr SR Feb yr - 5yr FR May yr - 5yr FR Sep yr - 5yr VR Oct yr - 5yr FR Apr yr - 5yr FR Jul yr - 5yr Sep-13 VR Sep yr - 5yr Sep-13 PBS Feb yr - 5yr FR May , yr - 5yr FR Sep yr - 5yr 4.99 FR Sep yr - 10yr FR Nov yr - 10yr FR Jun yr - 10yr FR Jul yr - 10yr FR May , yr - 10yr FR Jul yr - 10yr FR May yr - 10yr Sep-13 FR Jul yr - 10yr FR Mar , > 10yr FR Sep > 10yr FR Sep > 10yr FR Sep > 10yr FR May > 10yr Sep-13 FR Jul > 10yr FR Feb > 10yr FR May , > 10yr FR Mar , > 10yr FR Aug > 10yr FR Jul > 10yr FR Jun , > 10yr FR May , > 10yr FR Mar , > 10yr PBS Feb > 10yr FR Jul > 10yr Sep-13 FR May > 10yr FR Apr > 10yr Source: Danareksa, BEI Appendix 1. Government Bonds Trading 9 September - 13 September

5 APPENDICES Appendix 2. Corporate Bonds Trading 9 September - 13 September 2013 Last Trade Last Done Vol (IDR Bonds Maturity Coupon Tenor Rating Freq Date Price Bn) Yield 12-Sep-13 JMPD11PXBFTW 10-Oct idaa JMPD01JM10ZB 12-Oct idaa ASDF01ACN2 22-Oct idaa Sep-13 ADMF04D 29-Oct idaa CFIN03B 8-Nov ida BEXI01ACN2 7-Dec idaaa BDMN02A 9-Dec idaa Sep-13 BIMF01A 14-Jan [Idr]BBB Sep-13 SANF01C 25-Jan ida Sep-13 BFIN01ACN2 1-Mar A+(idn) NISP01ACN1 1-Mar idaaa/aaa(idn) Sep-13 ADMF02ACN1 11-Mar idaa FIFA01ACN2 14-Apr idaa+/aaa(idn) FIFA01BCN1 20-Apr idaa Sep-13 ADMF01BCN2 4-May idaa ADMF05C 27-May idaa BBTN13C 29-May AA IMFI04B 9-Jun ida MEDC02B 17-Jun AA PPGD13A1 1-Jul AA ASDF01BCN2 12-Oct idaa ADMF04E 29-Oct idaa CFIN03C 8-Nov ida Sep-13 PPLN07 11-Nov idaa ISAT07A 8-Dec AA Sep-13 SANF02C 20-Jan idaa ASDF01BCN1 21-Feb idaa Sep-13 BSLT04 9-Apr ida ISAT06B 9-Apr idaa SMFP01BCN2 25-Apr AA(idn) Sep-13 BCAF01CCN1 9-May idaa+/aa+(idn) Sep-13 IMFI01BCN1 11-May ida Sep-13 WEHA01 16-May idbbb ADMF05D 27-May idaa Sep-13 SMADMF01CCN1 1-Mar idaa+(sy) Sep-13 IMFI01BCN2 8-May ida Sep-13 BCAF01BCN2 14-Jun idaa+/aaa(idn) Sep-13 ASDF02CCN1 27-Jun idaa Sep-13 BPFI01C 3-Jul idbbb APLN01B 25-Aug ida BNII01BCN1 6-Dec AAA(idn) BMRI01 11-Dec AA Sep-13 ADMF01CCN1 16-Dec idaa Sep-13 ASDF01CCN1 21-Feb idaa SMFP01CCN2 25-Apr AA(idn) Sep-13 SMKMYOR02 9-May idaa-(sy) WSKT02B 5-Jun ida NISP03SB 30-Jun AA(idn) Sep-13 ADHI01ACN1 3-Jul ida Sep-13 BSDE01BCN1 4-Jul ida BNGA01SB 8-Jul AA(idn) Sep-13 BTPN01BCN2 3-Aug AA-(idn) Sep-13 APLN02 15-Aug ida Sep-13 PPGD12A 4-Sep idaa Sep-13 PNBN04SB 9-Nov idaa-/a+(idn) Sep-13 SSMM01B 30-Nov ida SISSMM01 30-Nov ida(sy) Sep-13 SIAGII02 18-Dec A-(idn) ADMF02DCN1 1-Mar idaa ADHI01ACN2 15-Mar ida Modified Duration Source: Danareksa, BEI 5

6 APPENDICES Appendix 2. Corporate Bonds TradingTrading 9 September - 13 September 2013 (Cont'd) Last Trade Last Done Vol (IDR Bonds Maturity Coupon Tenor Rating Freq Date Price Bn) Yield 1 ADHI01ACN2 15-Mar ida SIAISA01 5-Apr ida-(sy) BNII01SB 19-May idaa Sep-13 BSDE01CN2 5-Jun idaa ROTI01CN1 11-Jun idaa Sep-13 APLN01CN1 27-Jun ida BBKP01SBCN1 6-Mar ida BNLI01SBCN2 19-Dec idaa Sep-13 PPLN11B 12-Jan idaa BBTN14 11-Jun idaa Sep-13 BVIC03SB 27-Jun idbbb Sep-13 ANTM01BCN1 14-Dec idaa ISAT08B 27-Jun idaa BBMISMSB1CN1 29-Jun ida Modified Duration Source: Danareksa, BEI 6

7 RESEARCH TEAM Debt Research (62 21) Fax No. (62 21) Head of Debt Research Yudistira Slamet ext Market Analyst Rifki Rizal ext Credit Analysts Amir A. Dalimunthe Ayesha Ardelia Production & Database Management Eka Nuraini ext ext ext Debt Capital Market Division Debt Capital Market Div. (62 21) Fax No. (62 21) / 25 Head of Debt Capital Market Budi Susanto budisusanto@danareksa.com ext Debt Sales & Brokerage Rina Rimawati D rina@danareksa.com 62 21) Debt Trading & Investment Romi Mulyadi ext romi@danareksa.com ext Agung Suprihanto agungs@danareksa.com Putrika Mayadipta putrikam@danareksa.com ext ext Product & Retail Setyo H. Purnomo setyohp@danareksa.com ext Ariningtyas W. Agustina ariningtyasw@danareksa.com ext Hernita Dwi Ariesandhy hernitada@danareksa.com ext DISCLAIMER The information contained in this report has been taken from sources which we deem reliable. However, none of P.T. Danareksa Sekuritas and/or its affiliated companies and/or their respective employees and/or agents makes any representation or warranty (express or implied) or accepts any responsibility or liability as to, or in relation to, the accuracy or completeness of the information and opinions contained in this report or as to any information contained in this report or any other such information or opinions remaining unchanged after the issue thereof. We expressly disclaim any responsibility or liability (express or implied) of P.T. Danareksa Sekuritas, its affiliated companies and their respective employees and agents whatsoever and howsoever arising (including, without limitation for any claims, proceedings, action, suits, losses, expenses, damages or costs) which may be brought against or suffered by any person as a results of acting in reliance upon the whole or any part of the contents of this report and neither P.T. Danareksa Sekuritas, its affiliated companies or their respective employees or agents accepts liability for any errors, omissions or mis-statements, negligent or otherwise, in the report and any liability in respect of the report or any inaccuracy therein or omission therefrom which might otherwise arise is hereby expresses disclaimed. The information contained in this report is not be taken as any recommendation made by P.T. Danareksa Sekuritas or any other person to enter into any agreement with regard to any investment mentioned in this document. This report is prepared for general circulation. It does not have regards to the specific person who may receive this report. In considering any investments you should make your own independent assessment and seek your own professional financial and legal advice 7