Latest bids in sukuk auction remained solid. Total bids in the last sukuk auction on 16-Oct continued to increase to Rp13.9tn (vs. Rp10.4tn in the previous sukuk auction on 2-Oct and average total bids per sukuk auction ytd of Rp12.8tn). So far, the biggest bids still came from 6mo series, which reached of Rp5.7tn (or almost 45% of average total bids ytd). Interestingly, foreign demand to sukuk also improved in October 2018.

Higher total bids also triggered the Government to issue higher total awarded, reported at Rp5.2tn, slightly higher than the previous sukuk auction’s total awarded of Rp5.1tn. Ytd, the Government has successfully issued more than Rp714.7tn- gross (including ORI-15 issuances totaling Rp23.4tn) or almost 90% of its new gross issuance target for this year. This supports our view that the Government might finish its issuance target by November 2018 (no more auctions in December 2018).

Onshore banks are still the biggest buyers of sukuk, both in primary and secondary markets. Looking at the average of net buyers in the primary market of sukuk auction, onshore banks were (still) the biggest net buyers, posting an average net buy per auction of Rp3.5tn (or reaching more than 50% of total sukuk issuance), followed by Bank Indonesia and insurance companies, which reached an average net buy per auction of Rp1tn and Rp0.6tn, respectively.

Meanwhile, including the secondary market, onshore banks were also reported as the biggest net buyers of sukuk instrument, posting net buy of Rp9.1tn ytd, followed by insurance companies and pension funds, which posted net buys of Rp7.9tn and Rp5tn, respectively, according to the latest bond fund flow data from DMO based on settlement date of 25-Oct.

Demand for sukuk auction today might still be solid. We still believe demand might still be above the Government’s target and within a range of Rp11tn-16tn, following three factors: (1) Liquidity projection in the banking system is relatively still ample at Rp86.9tn as of 29-Oct. (2) There will be Rp4.2tn of maturing SPN bond series and Rp196.5bn of total coupon payments this week; and (3) Foreign investors’ demand to rupiah government bonds (including sukuk) has improved and kept posting net inflow in the last one week.

We estimate the fair yields for sukuk auction will be 6.7% (range: 6.656-6.75%) for 6mo-SPNS, 6.98% (range: 6.938-7.031%) for 9-mo SPNS, 8.2% (range: 8.156-8.25%) for 2.5-yr PBS014, 8.7% (range: 8.656-8.75%) for 4.9-yr PBS019, 8.89% (range: 8.844-8.938%) for 7-yr PBS017, and 9.27% (range: 9.219-9.313%) for 13-yr PBS012. (Source: Mandiri Sekuritas)


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