The Finance Ministry’s announcement of a 6.4 percent fixed coupon rate for retail government bonds series ORI-017 is a relatively attractive valuation for retail investors, analysts say.
Mandiri Sekuritas head of fixed income research Handy Yunianto said the coupon rate reflected a 90 basis points (bps) spread with the Deposit Insurance Corporation (LPS) deposit rate, which is higher than the spread of the previous ORI series.
Although the previous ORI-016 offered a higher coupon rate of 6.8 percent, the spread was only 30 bps above the LPS rate at that time.
“The current series actually has a bigger spread due to the lowering of the LPS guaranteed interest rate, which has fallen quite deep along with the fall of Bank Indonesia’s [BI] rate,” Handy told The Jakarta Post on Friday.
BI has cut its benchmark interest rate by 50 bps so far this year to 4.5 percent in an effort to stabilize the economy amid the volatility caused by the COVID-19 pandemic. Meanwhile, the LPS rate has fallen 75 bps to 5.5 percent during the same period.
“That coupon rate is still attractive because it is higher than the deposit rate,” RHB Sekuritas Indonesia assistant vice president Adra Wijasena told the Post.
The coupon rate was “reasonable and aligned with investor’s expectation”, he added, citing the yield of the three-year-tenor government debt paper (SUN) of 6.38 percent as of Thursday, according to data from the Indonesia Bond Pricing Agency (IBPA). The ORI-017 series also has a tenor of three years, set to mature on July 15, 2023.
Adra added that aside from the attractive rate, retail government bonds were still considered a good investment vehicle as the 15 percent tax for bonds was still lower than the 20 percent tax for time deposits.
ORI-017, which will be offered from June 15 to July 9, will be available online across 25 of the DJPPR’s distribution partners including banks, brokerage houses and fintech. The minimum order is Rp 1 million (US$70.23) and the maximum is Rp 3 billion. ORI will only become tradable between domestic investors after a two-month minimum holding period that ends on Sept. 15.
According to the latest data from the Finance Ministry’s debt management office (DMO), retail investors owned Rp 95.45 trillion in rupiah-denominated government bonds, around 3.1 percent of the total outstanding bonds, as of June 8.
During a webinar held as part of the Post’s webinar series “Jakpost Up Close” on Wednesday, Handy spoke about the low level of individual participation in the bond market. As of June 10, retail investors only held around 3 percent of tradable government bonds, or Rp 95.6 trillion out of the total Rp 3.07 quadrillion, according to data from the DMO.
Foreign investors, on the other hand, dominate ownership, holding 30 percent, while banks own 31.7 percent.
Despite this, enthusiasm from retail investors has appeared to grow steadily in recent years, as seen by the increase in new retail investor clients across different securities companies.
As of 2019, Mandiri Sekuritas had 119,000 retail clients, up from 95,000 the previous year, accounting for around 25 percent of new client growth per year. During the first four months of this year, it booked 11,000 new retail customers. The securities company has been appointed as one of the 25 distribution partners for ORI-017.
Digital investment portal Tanamduit, another official distribution partner for government bonds, reported that the number of customers registering on its platform had increased 31 percent to more than 230,000 people as of the end of May.
According to a DMO press statement, the process to purchase ORI-017 online will be divided into four phases: registration, billing order, payment and settlement. Retail investors are encouraged to contact one of the 25 distribution partners to place purchase orders through their electronic systems.