Felita, associate director of corporates at Fitch Ratings, said that domestic corporate bond issuances in the first four months of this year were significantly lower compared with the same period last year.

The drop was due to a combination of high interest rates that made firms more reluctant to seek debt financing, as well as a shift by investors toward shorter debt tenors, she said.

On the latter, the weighted average tenor of onshore issuances fell to between three and four years in the past two years, whereas between 2018 and 2020, it could be up to five years, Felita said, adding that the tenor length continued to be shorter this year.

"We have observed that the tenors went below three years between January and April this year, with the proportion of one-year tenor issuances amounting to above 50 percent, up from only 20 percent last year," Felita told The Jakarta Post on Thursday.

At the same time, this year’s value of mature corporate notes is lower than last year, which will likely signal even less need for firms to issue bonds, she said.

"In addition, companies may also consider other refinancing options, such as bank loans in view of potentially higher coupon rates [for corporate bonds]," Felita stated.

Local rating agency PT Pemeringkat Efek Indonesia (Pefindo) also shared a similar opinion. It forecast that total corporate bonds issuance this year would only be between Rp 144.2 trillion (US$9.81 billion) and Rp 158.3 trillion, slightly lower than the Rp 163.6 trillion last year.

"We see there is still a high refinancing need this year, but not as high as last year," Pefindo economist Suhindarto told the Post on Thursday.

Rully Arya Wisnubroto, senior economist at Mirae Asset Sekuritas, felt differently, saying he expected there could still be more corporate bond issuances this year.

He believes that there is a possibility for Bank Indonesia (BI) to ease monetary policy this year and combined with the strong national economy, this could propel bond growth.

Read also: Government bonds flourish as interest rate hikes approach peak: Analysts

Fitch Rating's Felita said a lower interest rate environment might spur bond issuances in theory, but she pointed out that transmission from the benchmark rate cut would take time before it could be reflected in bond coupon rates.

"While the domestic bond market is less affected by the global geopolitical issue and declining global economic growth, local non-financial corporate bond issuances will face their own challenge in the form of the national elections," Felita said.

Pefindo’s Suhindarto explained that expectations of an interest rate hike having hit its peak could encourage investors to purchase government and corporate bonds, as they seek bigger profits before interest rates drop.

"The latest inflation data, which have come near to BI's target range, would lead to expectations that the central bank may start cutting rates, which will push down coupon prices. Thus, the cost of issuing a bond will be cheaper later," Suhindarto said.

According to him, the spread between corporate bonds and government bonds, which represents the premium that is asked by investors, has continued to decline. This means investors are willing to accept lower returns when they put their money into corporate bonds, compared with the past.

"The drop in sought-after premium also shows the improvement in these companies’ businesses and financial performances, along with the solid economic growth," Suhindarto stated, adding that it might lead to greater demand for corporate notes.

Concurring with Felita, he said the upcoming national elections might lead companies to choose to wait-and-see prior to issuing bonds, as the presidential vote does not involve an incumbent candidate and thus poses uncertainty for business.

Financial and telco firms may issue more bonds

The corporate bonds that are ranked by Pefindo this year are still dominated by the multifinance sector, which issued bonds with a total value of Rp 7.03 trillion, followed by mining and pulp and paper companies.

Financing companies, including multi finance, also comprised the majority of maturing bonds this year.

"The data show which sector will issue more corporate bonds this year, with an assumption that they will choose to do refinancing, rather than redeeming the bonds that have reached their due date," Suhindarto said.

Read also: Indonesian firms look inward for financing as global volatility runs amok

Meanwhile, Fitch Ratings expected regular issuers from the usual sectors would continue to dominate bond issuances this year. These include telcos and towers, metal and mining, as well as the pulp and paper sectors.

"Those sectors have made up more than 60 percent of non-financial corporate note issuances this year. They only accounted for around 50 percent last year," Felita said.

Moderate risks ahead

Felita said that bond issuance and refinancing would be more challenging due to macroeconomic risks. However, issuers with stronger and more diversified funding access, as well as a better credit profile, would have more flexibility.

"We do not expect the frequency of non-financial corporate bond defaults or missed payments to materially increase this year. Some of the issuers with weaker credit have either defaulted or restructured their bonds between 2020 and 2022," Felita said.

Pefindo's Suhindarto also said that the default rate of Indonesian corporate bonds was still in a good condition and would keep declining.

"This year, there are no Pefindo-ranked companies who have fallen into default. So, I don't think that we need to worry. But we also need to be careful in choosing investment options," Suhindarto said.