Low Coupon Rate Makes Indonesia's Latest ORI Bonds Unappealing
The offering period of the Indonesian central government's latest series of (conventional) Indonesian Retail Bonds (in Indonesian: Obligasi Ritel Indonesia, or ORI) is almost over (it closes on Thursday, 19 October 2017). Contrary to our earlier report, demand for the ORI014 series seems not as strong as initially expected.
A number of sales points indicate that they have difficulty to sell their allocated amount of ORI014 bonds (received from Indonesia's Finance Ministry) to Indonesian retail investors (foreign investors cannot invest in ORI bonds). The main reason for bleak demand is the low coupon rate of 5.85 percent (the lowest-ever coupon in the history of the ORI bonds), and which is even below the coupon of the three-year government bond (SUN) or the deposit accounts rates at the smaller banks in Indonesia.
The ORI series used to offer the premium coupon rate to domestic retail investors in order to attract investment and make the investor less interested in stocks, mutual funds, deposit accounts, or property. Proceeds from the ORI bonds are used to finance the government's state budget.
Max Nico Demus, Head of the Research Division of Indomitra Securities, said he spoke to several ORI014 sales points and learned that these points have difficulty to sell even a modest 10 percent of their allocated ORI014 bonds. However, he declined to mention the names of these sales points.
Earlier, Bank Central Asia (BCA), Bank Mandiri and Bank Rakyat Indonesia said there was solid demand for the ORI014 series and were optimistic that their allocated portion of bonds would be absorbed by Indonesian investors.
So far only IDR 13.4 trillion (approx. USD $992 million) worth of ORI014 has been sold, still well below the IDR 20 trillion target, and well below the IDR 19.7 trillion that was collected last year through the ORI013 series (that carried a 6.6 percent coupon rate).
Meanwhile, Indonesia's Finance Ministry said there are no sales points that have requested for an additional amount of ORI014 bonds. This is also in contract to previous ORI sales.
The low coupon of the ORI014 series is related to the low interest rate environment in Indonesia with the central bank's benchmark rate now at 4.25 percent amid low inflation. However, it is also a risky decision as a looming rate hike in the USA can cause a big flow of funds from emerging markets toward US investment instruments.
Indonesian ORI Bond Series:
| ORI | Year |
Coupon (%) |
Maturity Date |
Investment (in trillion) |
| 001 | 2006 | 12,05 | 08-08-2009 | IDR 3.3 |
| 002 | 2007 | 9,28 | 28-03-2010 | IDR 6.2 |
| 003 | 2007 | 9,40 | 12-09-2011 | IDR 9.4 |
| 004 | 2008 | 9.50 | 12-03-2012 | IDR 13.5 |
| 005 | 2008 | 11,45 | 15-09-2013 | IDR 2.7 |
| 006 | 2009 | 9,35 | 15-08-2012 | IDR 8.5 |
| 007 | 2010 | 7,95 | 15-08-2013 | IDR 8.0 |
| 008 | 2011 | 7,30 | 15-10-2014 | IDR 11.0 |
| 009 | 2012 | 6,25 | 15-10-2015 | IDR 12.7 |
| 010 | 2013 | 8,50 | 15-10-2016 | IDR 20.2 |
| 011 | 2014 | 8,50 | 15-10-2017 | IDR 21.2 |
| 012 | 2015 | 9,00 | 21-09-2018 | IDR 27.4 |
| 013 | 2016 | 6,60 | 15-10-2019 | IDR 19.7 |
| 014 | 2017 | 5,85 | 15-10-2020 |