Download annual debt financing strategy

UNOFFICIAL TRANSLATION
MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
Directorate General of Debt Management
ANNUAL DEBT FINANCING STRATEGY
2015
TABLE OF CONTENTS
Preface ........................................................................................
Table of Contents ...........................................................................
List of Tables ................................................................................
Background ..................................................................................
Objectives dan Scopes ......................................................................
General Debt Financing Strategies .......................................................
Macroeconomic and Financial Market Conditions .....................................
Budget Financing Needs 2015 ............................................................
1. Cash Financing Strategy ................................................................
1.1.Rupiah Denominated Domestic Financing ........................................
1.1.1.
Issuance of Domestic Government Securities ........................
1.2.Foreign Financing ....................................................................
1.2.1.
Issuance of Foreign Currency Denominated Securities..............
1.2.2.
Disbursement of Program Loans ........................................
1.2.3.
Financing Flexibility .....................................................
1.2.4.
Contingent Loan Facility ................................................
1.3.Portfolio Management...............................................................
1.3.1.
Debt Switching ...........................................................
1.3.2.
Debt Buyback .............................................................
2. Project Financing Strategy.............................................................
2.1.Project Loans from Foreign Creditors ............................................
2.2.Domestic Loans ......................................................................
2.3.Project Based Sukuk ................................................................
3. Risk Indicators ............................................................................
3.1.Interest Rate Risk. ...................................................................
3.2.Refinancing Risk .....................................................................
3.3.Exchange Rate Risk .................................................................
4. Expected Debt Portfolio In The End Of 2015 ......................................
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List of Appendixes:
Appendix
Appendix
Appendix
Appendix
1:
2:
3:
4:
Budget Financing of 2015 ...................................................
Government Securities Portfolio 2010 - 2014 ............................
Loans Portfolio 2010 - 2014 .................................................
Applicable Formulas for Portfolio Risks Computation ...................
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LIST OF TABLES
Table 1
Table 2
Table 3
Table 4
Table 5
Table 6
Table 7
Table 8
Table 9
Table 10
Table 11
Indonesia Macroeconomic Assumptions .....................................
Budget Financing Needs of 2015 ............................................
Source of Budget Financing ...................................................
Issuance of Domestic Government Securities through Auction .........
Retail Bonds Issuance 2012-2015 ............................................
Disbursement Plan of Program Loans ........................................
List of Projects of 2015 Budget ..............................................
Disbursement Plan of Domestic Project Loans .............................
List of Projects Financed by PBS scheme ...................................
Risk Indicator Targets for Debt Financing of 2015 ........................
Expected Risks Indicators in the end of 2015 ..............................
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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
Macroeconomic
Assumptions
1)
2)
3)
4)
5)
6)
2015 Budget and BI rate
World Bank
ADB
IMF
OECD
Bloomberg Consensus
Growth
(%)
Inflation
(%)
5,80
5,60
5,80
5,50
5,20
5,72
4,40
5,00
6,90
6,70
6,20
6,90
Exchange
Rate
(Rp/USD1)
11.900
12.500
BI Rate
(%)
Current Account
Deficit to PDB (%)
7,50
7,80
2,10
2,00
2,90
3,30
2,50
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-
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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
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
*) 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
in trillion IDR
Budget
Cash Financing
Gross Securities Issuance*
IDR Denominated Securities
Auction
non-Auction
FX Denominated Securities
Program Loans
issuance
431
424
338
80%
298
40
86
20%
7
Project Financing
44
Project Loans
40
On-Lent Loans
(4)
Domestic Loans
2
Project Based Sukuk
7
Total
% to gross
475
*) 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.
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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 rupiahdenominated 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.
Series
T-Bills 3 month
T-Bills 12 month
Government
Benchmark Series
Securities (SUN)
(tenor 5, 10, 15, 20 year)
Non Benchmark Series
Islamic Securities Sharia T-Bills
(SBSN)
Project Based Sukuk
Total
Range of Issuance
3% - 5%
19% - 21%
Number of Auction
12 times
23 times
62% - 64%
23 times
0% - 1%
6% - 8%
6% - 8%
100%
based on necessity
22 times
22 times
45 times
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.
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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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Primary Dealers of Government
Securities of 2015
Bidders of Sharia 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.
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 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
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
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.
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Table 5. Retail Bonds Issuance 2012-2015
in trillion IDR
Conventional Retail Bonds (ORI)
Retail Sukuk
Saving Bonds
2012
13
14
-
2013 2014
20
21
15
19
2
2015*
20.0
20.0
-
*) 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 nontradable 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
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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
in billion IDR
1. World Bank
2. ADB
Total
equivalent in million USD
2015 Budget
3,570
3,570
7,140
600
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.
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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
Project Name
1
2
3
4
Construction of Jakarta Mass Rapid Transit Project (I)
Procurement of Track Material and Turn Out Phase II
Railway Electrification and DD Tracking Project
Western Indonesia National Roads Improvement Project
(WINRIP)
5 Railway Double Tracking on Java Southline Project (III)
6 National Program for Community Empowerment in Rural 20122015
7 The IDB PNPM Integrated Community Driven Development
Project Phase 3 (IDB PNPM Phase-3)
8 National Community Empowerment Program-Urban Areas
9 Regional Roads Development Project
10 Railway Double Tracking and Signaling Improvement SoloSurabaya (Phase I: Solo-Paron)
Other Projects (321 projects)
Total (in billion IDR)
2.2.
Lender
JICA
China
JICA
World Bank
JICA
World Bank
2015
Budget
2,583
1,150
894
823
588
525
IDB
World Bank
ADB
China
478
455
433
398
31,569
39,897
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 governmentowned banks.
12
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
in billion IDR
Disbursement (gross)
1. Ministry of Defense
2. National Police Department
Principal Payment
Total
2.3.
2015 Budget
2,000
1,500
500
(379)
1,621
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
in trillion IDR
Ministry
Contract
Amount
1
Ministry of Transportation
2.92
2
Ministry of Public Works
Ministry of Religious Affairs
3.54
Total
7.14
3
0.68
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.
13
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%.
14
Table 10. Risk Indicator Targets for Debt Financing of 2015
Risks
Indicators
Interest Rate Risk
VR Proportion
ATM (year)
Refinancing Risk
Maturity in 1 year
Exchange Rate Risk
FX Proportion
Instruments
Debt
Securities
Loans
Debt
Securities
Loans
Debt
Securities
Loans
Debt
Securities
Loans
Target of 2015
9,5% - 10,5%
0% - 2%
Max 100%
8,1 - 9,1
7,9 - 8,9
9,7 - 10,7
Max 19%
Max 22%
Max 30% of total debt
Max 20% of gross issuance
Max 98% to total loans
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
Indikator
Dec-13
Dec 2014*
Dec 2015**
1,912,827
649,933
2,562,760
2,185,713
641,932
2,827,645
MTDS '14 - '17
Outstanding (in billion IDR)
Securities
Loans
Debt
1,661,055
709,947
2,371,002
Interest Rate Risk
VR proportion
16.01%
14.49%
13.18%
11% - 15%
ATM (years)
9.60
9.82
9.38
9 - 10
Maturing in 1 years
8.64%
7.81%
6.35%
6% - 10%
46.70%
42.48%
40.64%
39% - 43%
Refinancing Risk
Exchange Rate Risk
FX Proportion
FX Rate Realization/Assumption
12,189
12,000
12,000
*) 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
15
APPENDIXES
16
APPENDIX 1:
BUDGET FINANCING OF 2015
in billion IDR
2015 Budget
A. REVENUES AND GRANTS
B. EXPENDITURES
C. PRIMARY BALANCES
D. BUDGET SURPLUS/(DEFICIT)
E. FINANCING
I. NON DEBT
II. DEBT
1. Government Securities (nett)
i. Gross Issuance
- Project Financing Sukuk Issuance
ii.Refinancing and Buyback
1,793,588.9
2,039,483.6
(93,926.4)
(245,894.7)
245,894.7
(8,961.3)
% to GDP
2.21
(0.08)
254,856.0
2.29
277,049.8
2.49
430,662.1
3.86
7,143.2
(153,612.3)
(1.38)
(22,193.8)
(0.20)
(23,815.0)
(0.21)
47,037.1
0.42
a. Program Loans
7,140.0
0.06
b. Project Loans
39,897.1
0.36
(4,319.4)
(0.04)
(66,532.8)
(0.60)
1,621.2
0.01
2. Loans
i. Foreign Loans
Disbursement
On-Lent Loans
Principal Payment
ii. Domestic Loans
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
17
APPENDIX 2:
GOVERNMENT SECURITIES PORTFOLIO
2010 - 2014
Indicators
Dec-2010
Dec-2011
Dec-2012
Des-2013
Des-2014*
Outstanding (billion IDR)
Conventional Securities (SUN)
T-Bills (SPN)
Zero Coupon Bonds
1,020,062
1,109,922
1,236,658
1,491,763
1,714,922
29,795
29,900
22,820
34,050
41,950
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
44,344
77,733
124,443
169,291
189,701
Islamic Securities (SBSN)
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
12,783
23,783
35,783
31,533
28,197
1,064,406
1,187,655
1,361,101
1,661,055
1,904,622
SDHI
Securities (SBN)
Portfolio Indicators
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%
15.22%
16.47%
19.46%
24.04%
23.14%
Exchange Rate Risk
FX Proportion
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%
*) End of 2014 projection based on realization as of Nov 4, 2014 and assumed
exchange rate of IDR12.000/USD1
6.05%
18
APPENDIX 3:
LOANS PORTFOLIO
2010 - 2014
Dec-2010
Outstanding (in billion USD)
Eq. in billion IDR
Exchange Rate
Dec-2011
Dec-2012
Dec-2013
Dec-2014*
68.12
68.27
63.50
58.24
53.49
612,446
626,055
614,088
709,947
641,932
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
21.97
21.79
20.47
21.07
22.80
- Floating Rate
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
Loans Portfolio Indicators
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%
100.0%
99.89%
99.72%
99.69%
99.54%
Exchange Rate Risk
FX proportion
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%
*) End of 2014 projection based on realization as of Oct, 2014 and assumed exchange
rate of IDR12.000/USD1
19
APPENDIX 4:
APPLICABLE FORMULAS FOR PORTFOLIO RISKS COMPUTATION
Interest Rate Risk
: Total Outstanding of
Variable Rate
proportion (VR)
Refixing rate risk
(RFR)
Average Time to
Refixing (ATR)
Securities Portfolio:
Loans Portfolio:
Securities/Loans/Debts
with variable interest rate
: Total Outstanding of
Securities/Loans/Debts
: 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
: 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)
Refinancing Risk
Average Time to
Maturity (ATM)
Securities/Loans/Debts Portfolio:
Securities/Loans/Debts
Securities Portofolio:
Manual Formula:
Formula in MS Excel :
YEARFRAC(start_date;end_date;basis)
Loans Portofolio:
Mac Duration (D)
: Total Outstanding of
Manual Formula:
: 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
: Coupon
: Yield (r assumed to be 0)
: 2 x (Maturity date –
Settlement date)
: Price
Formula in MS Excel:
DURATION(settl_date;mty_date;
coupon;yld;frequency;basis)
20
: Total outstanding of
Maturity in i-yr
(Mty)
Securities/Loans maturing
in or less than 1 year
DIRECTOR GENERAL OF DEBT MANAGEMENT,
ROBERT PAKPAHAN
21
MINISTRY OF FINANCE OF REPUBLIC OF INDONESIA
Directorate General of Debt Management
Jl. Dr. Wahidin Raya No. 1 Jakarta Pusat 10710 - Indonesia