Risk Premium : Investors' Perspective Does Matter

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1 WEEKLY REPORT D E B T RESEARCH 24 SEPTEMBER 20 Risk Premium : Investors' Perspective Does Matter Indonesia FCLT Rating S & P Moody's Fitch BB+ Baa3 BBB Key Market Indicators as of 22Sep BI Rate 7.50% JCI Index 5,220 IDR 11,976 Inflation(yoy) Aug 3.99% Domestic Bonds Outstanding Gov't Bonds as of 17Sep Corp Bonds as of 22Sep Previous Week Trading Volume Government Bonds Corporate Bonds Benchmark Yield as of 22Sep FR0069 (5 year) 8.009% FR0070 (10 year) 8.181% FR0071 (15 year) 8.503% FR0068 (20 year) 8.707% Source : Bloomberg, Mid YTM Government Bonds Indices as of 22Sep Price Index (Bloomberg : DGBIIDPR) Yield Index (Bloomberg : DGBIIDYD) 8.30% TR Index (Bloomberg : DGBIIDTR) Calendar of Event 25Sep US Initital Jobless Claim (Survey : 296K; Prior : 280K) 30Sep Indonesia Money Supply M2 YoY (Survey : NA; Prior : 10.8%; Revised : 11.0%) 1Oct China Manufacturing PMI (Survey : 51; Prior : 51.1) Analysts Rifki Rizal ext 3404 rifkir@danareksa.com IDR tn IDR tn IDR 55.02tn IDR 1.57tn We conducted a study to compare the risk premium for different type of corporate bond issuers with different credit qualities. We used the instrument's rating at issuance as a proxy to measure the credit quality of an issuer. As for the risk premium, the closest proxy that we currently have is the spread between the corporate bond's coupon rate and yield of similar maturity Government bond. If an issuance consists of more than one series, we use the weighted average spread of the isssuance with the series' amount as the weight. In this study, we used the data from corporate bond issuances between January 2013 to August 20, excluding subordinated bonds and variable rate bonds. Within the time period, there were 75 corporate bonds issuance, consists of 159 bonds series issued by 55 issuers. The corporate bonds' rating varies from BBB rated to AAA rated bonds. We would like to compare the risk premium between financial vs non financial companies (Appendix 1) and also the difference between SOE vs Private companies (Appendix 2). Financial industry face higher premium risk Despite most of the bonds issued by financial industry are rated above ida+ (68%), investors demand higher risk premium for holding instruments in this industry than holding instruments from non financial industry where bonds with rating ida+ and above only accounted for 43%. The average risk premium for the ida+ rated bonds from financial industry was 398bps, higher by 162bps compared to average risk premium in the same class (ida+) of non financial industry. That difference is the highest among other rating class. There might be another factor other than credit risk for investors in determining the risk premium, such as supplies in both primary and secondary market. Premium risk for SOE is lower SOE's bond issuances has lower average risk premium than Private's bonds in all rating class. The average risk premium for the ida rated bonds from SOE was 297bps, 162bps lower compared to average risk premium in the same rating class (ida+) of Private companies. This implies investors tend to believe that SOE has better credit quality than Private in the same rating class. Kami melakukan studi untuk membandingkan risk premium dari berbagai tipe emiten obligasi dengan kualitas kredit yang berbeda. Kami menggunakan rating instrumen pada saat penerbitan sebagai proxy untuk mengukur credit quality dari emiten obligasi. Untuk risk premium, proxy yang dirasa paling mendekati adalah spread antara tingkat kupon obligasi korporasi dan yield obligasi Pemerintah dengan tingkat jatuh tempo yang serupa. Jika dalam suatu penerbitan terdapat lebih dari satu seri obligasi, maka kami menggunakan ratarata tertimbang dengan pembobotan berdasarkan jumlah nominal tiap seri obligasi. Dalam studi ini, kami menggunakan data penerbitan obligasi korporasi dari Januari 2013 hingga Agustus 20, tidak termasuk di dalamnya obligasi subordinasi dan obligasi dengan variable rate. Selama periode tersebut, terdapat 75 penerbitan obligasi korporasi, terdiri dari 159 seri obligasi yang diterbitkan oleh 55 emiten. Kelas rating obligasi korporasi yang dibandingkan bervariasi dari idbbb hingga idaaa. Kami membandingkan risk premium antara industri keuangan vs non keuangan (Appendix 1) dan risk premium antara BUMN vs swasta (Appendix 2). Risk premium financial companies lebih tinggi Walau untuk penerbitan dari industri keuangan banyak yang memiliki rating instrumen di atas ida+ (68%), risk premium yang diminta lebih tinggi dari industri non keuangan yang hanya memiliki penerbitan di atas ida+ sebesar 43%. Untuk kelas rating ida+ dari industri keuangan memiliki ratarata risk premium sebesar 398bps, lebih tinggi 162bps dibandingkan ratarata risk premium kelas rating ida+ dari industri non keuangan. Perbedaan tersebut merupakan yang tertinggi diantara kelas rating yang lain. Kemungkinan besar selain credit risk, terdapat faktor lain yang menjadi pertimbangan investor dalam menentukan risk premium, misalnyasupply di pasar baik perdana maupun sekunder. Risk premium BUMN lebih rendah Penerbitan obligasi BUMN memiliki ratarata risk premium lebih rendah dibandingkan swasta di semua kelas rating. Untuk kelas rating ida, BUMN memiliki ratarata risk premium sebesar 297bps, lebih rendah 162bps jika dibandingkan dengan ratarata risk premium perusahaan swasta. Hal ini menunjukkan investor menilai BUMN memiliki credit quality yang lebih baik dibanding swasta untuk kelas rating yang sama. Ayesha Ardelia ext.3406 ayesha@danareksa.com Amir A. Dalimunthe ext.3405 amirda@danareksa.com Please read important disclosure at the back of this report

2 22 26 September 20 WEEKLY REPORT MACROECONOMICS CONDITION Foreign Holdings moved sideways Danareksa Government Bonds Yield Index (DGBI) closed the week at 8.29% or up 10bps from the previous week, recorded a negative total return of 0.11% during the week. Foreign proportion of Government Bonds moved sideways since the Rupiah start to weakened against US Dollar in the beginning of September 20. Between September 8, 20 to September 17, 20, foreign holdings in SUN declined by IDR 630 billion to IDR trillion, but the proportions remained at 37.25%. On the other hand, Domestic Bank and Bank Indonesia ownership also declined by IDR 4.33 trillion and IDR 1.63 trillion, respectively. Indonesia Credit Default Swap (CDS) 5years also tends to moved sideways during the week. CDS 5years rose only 2 bps from 135 bps to 137 bps at the end of the week. Danareksa Government Bonds Yield Index (DGBI) menutup minggu lalu di level 8,29%, naik 10bps dari penutupan minggu sebelumnya, dan mencatatkan total return negatif sebesar 0,11% selama minggu lalu. Kepemilikan asing di obligasi Pemerintah cenderung bergerak sideways sejak Rupiah mulai melemah di awal September 20. Selama periode 8 hingga 17 September 20, kepemilikan asing turun IDR630 miliar menjadi Rp442,15 triliun namun secara proporsi tetap di level 37,25%. Sejalan dengan investor asing, kepemilikan bank domestik dan Bank Indonesia (BI) juga mengalami penurunan masingmasing sebesar IDR4,33 triliun dan IDR1,63 triliun. Credit Default Swap (CDS) Indonesia 5tahun cenderung sideways selama minggu lalu. CDS 5tahun naik 2bps dari 135bps menjadi 137bps di akhir minggu. Yield Index CDS 5Year (bps) Feb10 May10 Aug10 Nov10 Feb11 May11 Aug11 Nov11 Feb12 May12 Aug12 Nov12 Feb13 May13 Aug13 Nov13 Feb May Aug 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 4Jun 10Jun 16Jun 20Jun 26Jun 2Jul 8Jul 15Jul 21Jul 25Jul 7Aug 13Aug 19Aug 25Aug 29Aug 4Sep 10Sep 16Sep 22Sep Yield Index BI Rate YoY Inflation Source: Danareksa, Bloomberg Gov't Bonds Ownership Source: Bloomberg Indonesia Philipinnes Brazil Turkey Rupiah closed at Rp11,976 per USD IDR trillion Jun 23Jun 26Jun 1Jul 4Jul 10Jul 15Jul 18Jul 23Jul 4Aug 7Aug 12Aug 15Aug 20Aug 25Aug 28Aug 2Sep 5Sep 10Sep 15Sep RRBI (RHS) BI (RHS) Domestic Bank Foreign Investors IDR trillion 25Jun 30Jun 3Jul 8Jul Jul 17Jul 22Jul 25Jul 6Aug 11Aug Aug 19Aug 22Aug 27Aug 1Sep 4Sep 9Sep 12Sep 17Sep 22Sep 12,150 12,050 11,950 11,850 11,750 11,650 11,550 11,450 Source: Ministry of Finance Source: Bloomberg Corporate Bonds Trading by Tenor Corporate Bonds Trading by Sector IDR Billion % Property & Construction 6.1% Consumer Goods 9.2% Infrastructure Others 9.6% Financial Company 38.5% Term to Maturity Source: IDX Process Data Source: IDX Process Data Banking 33.0% 2

3 22 26 September 20 WEEKLY REPORT GOVERNMENT BONDS REVIEW Higher Pressure in Short and Long Tenors Total trade volume of Government bonds last week reached IDR trillion, IDR2.78 trillion lower than the previous week. The decline owed mostly by mid and long tenor. Trade volume for the short tenor went down IDR billion to IDR trillion, and for the mid tenor decreased IDR4.48 trillion to IDR17.96 trillion. In contrast, trade volume for the long tenor rose IDR2.63 trillion to IDR12.15 trillion. According to the Government Bonds yield curve changes last week, the upward pressure was higher for short and long tenor bonds. Yield curve for short and long tenor increased 80 bps respectively, meanwhile for mid tenor went up 23 bps. Total volume transaksi obligasi Pemerintah selama minggu lalu mencapai IDR55,03 triliun, lebih rendah IDR2,78 triliun jika dibandingkan dengan total transaksi minggu sebelumnya. Penurunan volume didominasi oleh tenor pendek dan menengah. Volume transaksi untuk tenor pendek turun IDR936,46 miliar menjadi IDR25,91 triliun, dan transaksi tenor menengah turun IDR4,48 triliun menjadi IDR17,96 triliun. Di sisi lain, volume transaksi untuk tenor panjang naik IDR2,63 triliun menjadi IDR12,15 triliun. Berdasarkan perubahan yield curve obligasi Pemerintah selama minggu lalu, tekanan naik yang lebih besar justru terjadi pada tenor pendek dan panjang. Yield curve untuk tenor pendek dan panjang masingmasing naik 80bps, sementara untuk tenor menengah naik 23bps. Spread INDON 10 year Over UST 10 year Spread IDR Gov't Bond 10 year over INDON 10 year 3.75% 3.50% 3.25% 3.00% 2.75% 2.50% 2.25% 2.00% 1.75% 1.50% 6Sep13 26Sep13 16Oct13 5Nov13 25Nov13 15Dec13 4Jan 24Jan 13Feb 5Mar 25Mar Apr 4May 24May 13Jun 3Jul 23Jul 12Aug 1Sep 21Sep 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 4.25% 4.00% 3.75% 3.50% 3.25% 3.00% 2.75% 2.50% 2.25% 6Sep13 24Sep13 12Oct13 30Oct13 17Nov13 5Dec13 23Dec13 10Jan 28Jan 15Feb 5Mar 23Mar 10Apr 28Apr 16May 3Jun 21Jun 9Jul 27Jul Aug 1Sep 19Sep 9.5% 8.5% 7.5% 6.5% 5.5% 4.5% 3.5% Risk Premium 10Y (LHS) UST 10Y INDON 10Y Source: US Treasury, Bloomberg, Danareksa Estimate Gov't Bonds Benchmark Series Yield Currency Risk Premium 10Y (LHS) INDON 10Y SUN 10Y Source: Bloomberg, Danareksa Estimate Daily Trading Volume 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% FR0069 5Y FR Y 7.0% FR Y FR Y 6.5% 6.0% 23Sep13 11Oct13 4Nov13 25Nov13 13Dec13 8Jan 29Jan 19Feb 11Mar 1Apr 23Apr May 6Jun 26Jun 17Jul 13Aug 2Sep 22Sep 9Sep Govt Short Govt Med Govt Long Corp 10Sep 11Sep 12Sep 15Sep 16Sep 17Sep 18Sep 19Sep 22Sep IDR trillion Source: Bloomberg Source: IDX processed data Yield Curve Comparison as of 22 September 20 Yield Curve Change from 12 to 19 September 20 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8.01% 3.38% 1.83% 4.49% Source: Danareksa Estimate 8.30% 8.56% 8.78% 9.00% 4.98% 5.23% 5.47% 2.59% 2.82% 3.05% 3.29% Term to Maturity UST YC GoI USD Yield Curve GoI IDR Yield Curve 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Term to Maturity Source: Danareksa Estimate 3

4 22 26 September 20 WEEKLY REPORT APPENDICES Appendix 1. Summary of Spread at Jan 2013 Aug 20 Appendix 2. Summary of Spread at Jan 2013 Aug 20 Rating NonFinancial Avg Spread at Source : IDX, Danareksa Estimates Number of Financial Avg Spread at Number of Rating SOE Avg Spread at Number of NonSOE Avg Spread at Number of AAA AAA AA AA AA AA AA AA A A A A A A BBB BBB BBB BBB Appendix 3. Government Bonds Trading September 20 Last Trade Last Done Vol (IDR Tenor Bonds Maturity Coupon Tenor Freq Yield Date Price Bn) Class 18Sep SPN Oct < 1yr 19Sep ORI008 15Oct < 1yr 19Sep FR Oct < 1yr 19Sep SPN Nov < 1yr 19Sep VR Dec , < 1yr 19Sep SPN Jan < 1yr 18Sep SPN Feb < 1yr 16Sep SPN Mar < 1yr 19Sep VR Apr , < 1yr 18Sep SPN May < 1yr 16Sep SPN Jun < 1yr 19Sep FR Jun < 1yr 19Sep SPN Jul < 1yr 17Sep IFR Aug < 1yr 19Sep IFR Sep < 1yr 19Sep SR004 21Sep < 1yr 19Sep ORI009 15Oct yr 5yr 19Sep SR005 27Feb yr 5yr 19Sep FR May yr 5yr 19Sep FR Sep yr 5yr 19Sep ORI010 15Oct , yr 5yr 18Sep VR Oct yr 5yr 19Sep SR006 5Mar , yr 5yr 19Sep FR Apr yr 5yr 18Sep FR Jul yr 5yr 16Sep VR Sep yr 5yr 19Sep FR May yr 5yr 17Sep FR Sep yr 5yr 19Sep FR Apr , yr 5yr 18Sep FR Sep yr 5yr 19Sep FR Nov yr 10yr 19Sep FR Jun yr 10yr 19Sep FR Jul yr 10yr 19Sep FR May yr 10yr 17Sep FR Jun yr 10yr 19Sep FR Jul yr 10yr 19Sep FR May yr 10yr 19Sep FR Jul yr 10yr 19Sep FR Mar , yr 10yr 19Sep FR Sep , yr 10yr 19Sep FR Sep > 10yr 19Sep FR Sep > 10yr Modified Duration Source: Danareksa, BEI 4

5 22 26 September 20 WEEKLY REPORT APPENDICES Appendix 3. Government Bonds Trading September 20 (Cont'd) Last Trade Last Done Vol (IDR Bonds Maturity Coupon Tenor Rating Freq Date Price Bn) Yield 19Sep FR May > 10yr 17Sep FR Jul > 10yr 16Sep FR Feb > 10yr 19Sep FR May > 10yr 19Sep FR Mar , > 10yr 19Sep FR Aug > 10yr 19Sep FR Jul > 10yr 19Sep FR Jun > 10yr 19Sep FR May > 10yr 19Sep FR Mar , > 10yr 18Sep IFR Feb > 10yr 16Sep FR May > 10yr 17Sep FR Jul > 10yr 15Sep FR May > 10yr 19Sep FR Apr > 10yr 19Sep FR Feb > 10yr Modified Duration Source: Danareksa, BEI 5

6 22 26 September 20 WEEKLY REPORT APPENDICES Appendix 4. Corporate Bonds Trading September 20 Last Trade Last Done Vol (IDR Bonds Maturity Coupon Tenor Rating Freq Date Price Bn) Yield 16Sep JSMR01ACN1S 2Oct idaa Sep CFIN03C 8Nov ida Sep PPLN07 11Nov idaa Sep SIMP01 1Dec AA Sep ADMF01BCN1 16Dec idaa Sep BEXI01ACN1 20Dec idaaa Sep BBRI02 22Dec AA Sep BNGA01A 23Dec idaaa Sep SANF02C 20Jan idaa Sep ASDF01BCN1 21Feb idaa Sep ASDF12D 25Feb idaa Sep SMADMF01BCN1 1Mar idaa+(sy) Sep WOMF05D 4Mar AA(idn) Sep FIFA01ACN3 24Mar idaa Sep ASDF02ACN3 Apr AAA(Idn) Sep FIFA01CCN1 20Apr idaa Sep ADMF01CCN2 4May idaa Sep ADMF05D 27May idaa Sep TRAC02C 5Jul ida Sep BTPN01ACN2 3Aug AA(idn) Sep SSIA01A 6Nov ida Sep PNBN05 9Nov idaa/aa(idn) Sep BIMF01B 9Jan [Idr]BBB Sep DNRK05B 11Jan ida Sep SMKBSBR01 13Jan ida(sy) Sep NISP01CCN1 19Feb idaaa/aaa(idn) Sep SMADMF01CCN1 1Mar idaa+(sy) Sep ADMF02CCN1 1Mar idaa Sep IMFI01CCN1 11May ida Sep SMKBSSB01 12May ida Sep BCAF01BCN2 Jun idaa+/aaa(idn) Sep BEXI04D 18Jun AAA Sep ASDF02CCN1 27Jun idaa Sep APLN01B 25Aug ida Sep BBTN12 19Sep idaa Sep ADMF02BCN2 24Oct idaa Sep BNII01BCN1 6Dec AAA(idn) Sep ISAT07B 8Dec AA Sep BMRI01 11Dec AA Sep BNGA01B 23Dec idaaa Sep JPFA01CN1 12Jan ida Sep TAFS01BCN1 13Feb AAA(idn) Sep ASDF01CCN1 21Feb idaa Sep FIFA01BCN3 Mar idaa Sep IMFI01BCN4 22Apr ida Sep ADMF02BCN3 May idaa Sep MEDC03 19Jun idaa Sep NISP03SB 30Jun AA(idn) Sep ADHISM1CN1 3Jul ida(sy) Sep PIHC01A 8Jul AAA(Idn) Sep BNGA01SB 8Jul AA(idn) Sep BMTR01B 12Jul ida Sep BTPN01BCN2 3Aug AA(idn) Sep APLN02 15Aug ida Sep BNGA01BCN1 30Oct IdAAA/AAA(idn) Sep SSIA01B 6Nov ida Sep PNBN04SB 9Nov idaa/a+(idn) Sep SDRA02 29Nov idbbb Sep SISSMM01 30Nov ida(sy) Sep SIAGII02 18Dec A(idn) Modified Duration Source: Danareksa, BEI 6

7 22 26 September 20 WEEKLY REPORT APPENDICES Appendix 4. Corporate Bonds TradingTrading September 20 (Cont'd) Last Trade Last Done Vol (IDR Bonds Maturity Coupon Tenor Rating Freq Date Price Bn) Yield 16Sep SIAGII02 18Dec A(idn) Sep PNBN01CN1 20Dec idaa Sep AISA01 5Apr ida Sep SIAISA01 5Apr ida(sy) Sep APLN01CN1 27Jun ida Sep BCAP01CN1 5Jul idbbb Sep BNGA01CCN2 20Nov idaaa Sep SMRA01CN1 11Dec ida Sep INDF07 13Jun idaa Sep TAXI01 24Jun ida Sep SDRA01SB 29Nov idbbb Sep TLKM02B 6Jul idaaa Sep BNGA02SB 23Dec AA(idn) Sep BBMISMSB1CN2 28Mar ida(sy) Sep BLTA03 31Mar ida Modified Duration Source: Danareksa, BEI 7

8 22 26 September 20 WEEKLY REPORT 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 Melissa Hartono Production & Database Management Eka Nuraini ext 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 (62 21) Debt Trading & Investment Rina Rimawati D Romi Mulyadi rina@danareksa.com ext romi@danareksa.com ext Agung Suprihanto agungs@danareksa.com ext Indra Figrachanda indraf@danareksa.com ext. 32 Putrika Mayadipta putrikam@danareksa.com ext Ariningtyas W. Agustina ariningtyasw@danareksa.com Hernita Dwi Ariesandhy hernitada@danareksa.com ext ext Product & Retail Setyo H. Purnomo setyohp@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 misstatements, 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 8