S

lower economic growth and falling prices of commodities will most likely affect the country'€™s corporate bonds issuance next year, according to the Indonesian Bond Pricing Agency (IBPA).

IBPA director Wahyu Trenggono predicted that global conditions would continue to affect the country'€™s economic growth next year, which he said '€œcomprises government assumption.'€

'€œThe economic growth assumption of 5.8 percent as stated in the 2015 state budget is very high. The government is too optimistic about the economic growth while in fact it is currently slowing down,'€ he said.

According to Wahyu, the high growth of the domestic economy in previous years was very much driven by the booming export of commodities, especially coal, to China and India as the main destinations. However, demand is now declining due to economic slowdown.

The domestic economy grew 5.01 percent in the third quarter of the year, the lowest growth recorded since 2009, according to Central Statistics Agency (BPS) data.

'€œAnother important factor that will also affect bonds issuance is the depreciation of the rupiah, which will continue next year,'€ he added.

Despite those challenges, Wahyu said bonds issuance would continue to grow slightly next year as many companies would need to increase their capital for business expansion and innovation.

Wahyu said bank loans and bonds would remain the major options for companies planning to seek fresh funds, even though the supply of the first option would be rather low due to the tightening of the banking industry'€™s loan-to-deposit ratio (LDR).

Banking statistics show that in January, the LDR stood at 90.4 percent and the ratio exceeded a safe level when it reached its peak at 92.2 percent in July, showing that banks went all out to secure the funds needed to finance their credit commitments.

However, the nationwide LDR stood at 88.9 percent by September, reflecting an ease in liquidity pressure since the beginning of the year.

High LDRs mean banks have tight liquidity while low LDRs mean banks do not channel enough loans as their intermediary function.

As of Dec. 16, the Indonesia Stock Exchange'€™s (IDX) data showed that corporate bonds and sukuk (Islamic bonds) issuance stood at Rp 45.29 trillion (US$3.65 billion), equal to 92.84 percent of its realized issuance. The amount came from 46 issuances of 34 companies listed on the IDX.

Wahyu said earlier the recent fuel-price hike and the increase of Bank Indonesia'€™s interest rate would prompt a 1.5-percent increase for the average yield of corporate bonds with 10-year maturity, to 9.5 percent from around 8 percent currently.

Meanwhile, PT BNI Securities fixed income analyst I Made Adi Saputra gave a more optimistic view, saying bonds and sukuk issuance would reach at least Rp 50 trillion next year after several of them postponed bond issuances in 2014 for various reasons.

Made said the postponement of bonds issuance this year was mainly prompted by political uncertainty when the country'€™s elected president was not officially announced until the end of the first half.

'€œBetween July and October, the country remained in a period of governmental transition. So, listed companies had only around three months, a relatively short time, to decide whether to issue bonds,'€ he said.

Besides, Made said corporate bonds issuance would take place more often in the first half of next year than in the second half due to the fact that many companies would be issuing bonds for the purpose of refinancing their matured debt papers and sukuk worth a total of Rp 33.74 trillion.

'€œMultifinance companies and banks will dominate the bonds issuance next year,'€ he added.