Corporate bonds may rise 18%

The issuance of corporate bonds may increase by up to 18 percent this year thanks to low interest rates after the recent investment rating upgrade by Fitch Ratings and Moody’s Investors Service, a local ratings agency says.

Only one month into 2012, PT Pemeringkat Efek Indonesia (Pefindo), which owns 91.5 percent of the market share in the local ratings business, has rated Rp 10 trillion worth of bond issuances for five companies, the agency’s president director, Ronald T Andi Kasim, said.

“Interest rates are on a downward trajectory and this will positively affect firms that are planning on bond issuances,” Ronald said during a press briefing at his office on Tuesday.

Rating upgrades are expected to bring down borrowing costs across the board and banking regulator Bank Indonesia (BI) is also pushing efforts to lower the interest rates charged by banks for lending by cutting the benchmark interest rate to an all-time low of 6 percent.

Pefindo’s rating director Salyadi Saputra said bond issuance, including medium-term notes (MTN), might reach Rp 60 trillion this year, 18 percent higher than the total Rp 51 trillion issuance last year.

“Another supporting factor for corporate bond issuance is the new regulation from [capital market regulator] Bapepam-LK that allows companies to issue bonds in stages. That makes life easier for bond issuers because they only need to register once for several issuances within a two-year period,” Salyadi said.

Many companies have taken advantage of the gradual bond-issuance facility, including Astra Group’s automotive financing unit PT Astra Sedaya Finance, which issued Rp 2 trillion of the planned Rp 6 trillion bonds earlier last month.

Mid-sized lender PT Bank Bukopin Tbk (BBKP) also aimed to collect Rp 1 trillion in the first phase of its Rp 2 trillion maximum bond sale, while financing firms PT Indomobil Finance Indonesia and PT Adira Dinamika Multifinance Tbk (ADMF) owned by Bank Danamon also plan to issue so-called self-registered bonds.

“At the end of 2011, corporate bond transactions reached Rp 400 billion per day, but in the middle of January, suddenly it was boosted to around Rp 600 billion a day. The most likely reason is due to foreign investors,” said Fadlul Imansyah, vice president for investment at PT CIMB principal asset management.

The new investment status also widens Indonesia’s investment base because conservative global funds, such as US pension funds, can only invest their assets under management in investment grade-rated countries.

Virine Sundari, the directror head of fixed income at PT OSK Nusadana Securities Indonesia, said new funds will come from domestic and foreign investors, especially given the lowering yield of government bonds, encourage foreign investors who were previously restricted to investing only in government bonds to shift to corporate bonds.