Aditya Wikrama

Rupiah-Denominated Corporate Bond Market Nears Record This Year

The issuance of rupiah-denominated corporate bonds this year is likely to reach a record of Rp 30 trillion ($3.18 billion), with about Rp 13 trillion set for release in the fourth quarter, the head of the state-owned credit rating firm said on Tuesday.

“Companies are still eager to issue bonds, as they avoid higher interest rates in bank loans,” said Kahlil Rowter, president director of PT Pefindo. “The market’s appetite for corporate bonds remains high, as the bonds still offer higher returns for long-term investments.”

The Rp 30 trillion value excludes dollar-denominated bonds issued this year. Twenty-four corporations have issued Rp 18.9 trillion worth of bonds this year. Another 13 companies are expected to issue an additional Rp 13.9 trillion of bonds before the end of the year.

“If all these bonds are issued, it will be a record of more than Rp 30 trillion,” said Iman Rachman, director of investment banking at PT Mandiri Sekuritas.

In comparison, domestic companies issued only Rp 14 trillion worth of bonds last year.

Iman said he expected about Rp 12.5 trillion worth of debt refinancing to come from domestic firms next year.

“We only aim to grab those refinancing deals from our existing customers. As for new bonds, we are hoping to arrange Rp 15 trillion for next year’s bonds sales,” he said.

Mandiri Sekuritas has jointly underwritten Rp 5 trillion worth of bonds this year, with about Rp 10 trillion still in the pipeline. This includes the Rp 1.5 trillion of bonds to be issued this quarter by PT Indosat, the country’s second-largest telecommunications operator.

Indosat is planning to use the proceeds of the sale for capital expenditure next year. It declined to specify figures for its capital expenditure, but said it plans to add 1,250 base transceiver stations to maintain service quality.

“Appetite [for Indosat bonds] remains significant based on our pre-sales offering, with pension funds always seeking good corporate bonds,” Iman said.

Although there have been reports that some companies, such as cellular operator PT Mobile-8 Telecom and shipper PT Arpeni Pratama Ocean Line, were experiencing difficulties in repaying their bond interest, the market was still not shunning local issues, one analyst said.

Some analysts have predicted a record number of corporate bond defaults next year in the region, in line with increased issues this year.

“I don’t think the problem with Arpeni will affect the corporate bond market much, as investors are more into looking at sovereign [risk] ratings,” said Seto Wardono, a bond analyst at PT Indo Premier Securities.

Arpeni was reported to have delayed paying its bond interest until early November, while Mobile-8 has defaulted on its coupon payment and is in talks to restructure debt payments with bondholders.

“I think investors are seeing bonds based on the country’s sovereign and overall bond rating, which remains stable,” Kahlil said. “Trouble has only affected several firms or sectors hit by the slowdown in global trade, such as the shipping sector.”

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