The Fixed Income Division provides services to corporate clients such: Banks, Pension Funds, Corporations, Insurance Companies, Financial Institutions, Investment Management, Corporate Securities and Cooperative Employees who all wish to trade debt securities like government bonds, corporate bonds, Islamic debt products, and Repo debt products.

Products of Fixed Income Division activities more are found in corporate and sovereign debt markets, secured assets products (Asset Backed Securities), the financing of the public sector through various debt instruments as well as the marketing and distribution of product sales & securitization of debt products.

We offer other services which include:
• Trade and Debt Syndication
• Asset Securitization (secured asset products/asset backed securities)
• Public Sector Financing
• Marketing and Sales Distribution product debentures and Debt Trading

The fixed Income Division provides various transaction services to Banks, Pension Funds, Corporations, Insurance Companies, Financial Institutions, Investment Management, Corporate Securities and Cooperative Employees who trade debt securities such as government bonds, corporate bonds, Islamic or Sharia version of debt products geared towards the retail sector (Sukuk or Sharia debt securities) and Repo debt products.

Asset Securitization
The fixed Income Division also conducts debt origination, underwriting, securitization and trading of Asset Backed Securities (ABS), including the securitization of housing loans (mortgages), commercial property, automobile and credit card.

Sector-Financing
Another service that the fixed income division is to assist with the financing of public sector bonds, finance and asset securitization structure for the district and provincial governments. Our team normally will give advisement to clients for project financing, refinancing, origination, debt execution, infrastructure financing and new public debt offering or private placement.

Marketing and Sales Distribution
The fixed Income Division also offers marketing and distribution services for selling of debt products such as government bonds, corporate bonds, Islamic or Sharia debt paper (Sukuk), and Repo debt institutional investor clients alike.

Asset Backed Securities (ABS) or better known in English as Asset-backed securities is a security (securities) comprising a set of financial assets in the form of claims arising from commercial papers such as credit card bills, loans, including mortgages, car loans, debt securities guaranteed by the government, and cash flow. In the process, the initial creditor (originator) has transferred financial assets to the holders of Asset backed Securities.

Financial assets are pooled into one asset that makes small and less worthy assets into the more valuable criteria also the inherent presence of such diversification in theory reduces risk. Securitization of these assets makes them a means of investment for existing and potential investors.

The central bank’s involvement in the trade of Asset backed Securities has also been conducted in Japan where the liquidity is abundant, but the funds are just spinning within the banking system and just does not flow into the real sector,  as published by a letter from the Bank of Japan (BOJ). Similarly, the Bank of Indonesia has performed a major breakthrough by contributing purchases of Asset backed Securities (ABS) through the secondary market and is not in any means contrary to laws under the Constitution of Bank Indonesia (BI) that allows the central bank buying securities in the secondary market.

Asset backed Securities (ABS) benefits for investors

From the investor’s side there are some benefits gained through the purchase of these instruments:

1. As an alternative to long-term funding for a period of 3 years to 10 years, in which the collective investment contract or Asset backed Security (ABS) will be more attractive to the investor compared with other debt securities such as bonds and promissory notes, because it is supported by a liquid asset with relatively small risk.
2. Although the Asset back Security (ABS) issuer (originator) experiences bankruptcy, the bills will always remain. This is different from buyers of bonds or promissory note, which will lose the funds if the company issuing the bond or a promissory concerned becomes insolvent.

Some of the advantages of Asset Backed Securities (ABS)

1. Cost of funds is cheap publishers of ABS will issue a cheaper cost where the increased rating for the quality of receivables becomes collateral, which means guaranteed supply of cash flows from ANS so that it can be offered with a low rate of return for the investor and the investor feels better because of  the investment becoming safer.
2. Efficient use of capital by the ABS, where the balance sheet structure of companies will be even greater  for powering it up (leverage) in which the management company’s financial management will be more prudent, obey the principle and efficient use of funds held owing to relatively high structural leverage (leverage) as a result of the ABS.
3. Diversifying sources of financing are not only be done by large companies but also by small companies or non-investment companies.
4. Sources of liquidity, especially for small medium-sized companies which often face problems borrowing traditionall though the securitization of the development in the standard enterprise.
5. Public disclosure is more minimal than any other financing method, which is offered to the public through the ABS, the full disclosure of openness of the issuers (issuer) is not required as well as the demands of full disclosure or openness to other issuers of securities.

The possible risks posed by the ABS

1. Interest rate risk, which the ABS will experience price fluctuations due to the influence of changes in interest rates, thus the price of EBA will drop when there is an increase in interest rates.
2. Early repayment (early call) will affect the yield received in the event of early redemption. Defaults, EBA holders will suffer losses if the debtor from bankruptcy asset fails to guarantee or unable to pay on time for interest and principal.

Sharia or Islamic Securities are issued and sold regulated by the State, namely the Ministry of Finance (the ministry). The process is where the government will choose the dealer and retail Sukuk or Islamic debt product through representation of legal consultation. Realtors must be required to have a commitment to the government in the development of the Islamic debt product or Sukuk market and are experienced in selling Islamic financial products under Islamic law (Sharia).

While the prospective of the appointed legal consultant is open to a legal advisor with the requirement to have a partner who has been registered as a Capital Market Supporting Professional at OJK (Indonesian financial authority) and experienced in the issuance of Sukuk or Islamic debt products (bonds).

In Indonesia alone, the government undertook the selection of the selling agents of retail which are open for Islamic banks and conventional banks, as well as securities companies with the four criteria of having a team member who is experienced in the sale of Islamic financial products, committed to developing the market  Islamic debt products under Sharia or Islamic law, has developed a work plan , sale strategy and methodology, and furthermore has the support of information technology systems that are adequate in the sale of retail Islamic debt products (Sukuk). The retail Islamic debt product under Sharia Law or Sukuk is an instrument that targets individual investors as an alternative investment if the global investment environment should experience an economic crisis.

Another reason to invest in Islamic debt products or Suku may be a solution for those not satisfied the past growth in Indonesian Sovereign retail bonds (ORI)

Although demand for Indonesian Sovereign retail bonds remain high (ORI), there seems to be a category of investors who are just yearning for Sharia products.

Corporate bonds are a term used for long-term debt instruments are generally a term of at least one year from the date of publication. The term commercial paper is sometimes used for debt instruments with shorter maturities

Sometimes the term “corporate bonds” are used for all of the bonds issued by non-governmental institutions denominated in local currencies. But clearly this term is only used for bonds issued by the company itself. Bonds issued by local authorities and supranational organizations are not included in this category.

The corporate bonds are often listed on the stock exchange and “electronic communications networks” (Electronic communication networks – ECN) such as Market Access and coupon bonds are usually not taxed. Sometimes there are also issued bonds with no coupon but with a high disbursement rate of the bonds compared to the resale value. Although bonds are usually listed on the exchange the biggest trading of these bonds has developed several traded markets is focusing on a specific niche market or a particular broker and often performed outside stock exchange trading (over the counter).

Some private bonds issued have an element of purchase options that are entitled to the issuer in repaying or redeeming the bond before the maturity date listed, and in the case of convertible bonds may also be converted to shares of ownership in the company.

Risk Analysis

These corporate or private sector bonds have a rating higher risk when compared with government or sovereign bonds. This risk depends on the type of company, market conditions and government that is used as a comparison and ranking of the issuing company.

This risk can be calculated by using a method called the comprehensive analysis, in order to establish differences in yields with government bonds.

Stock or equities are securities that are already known to the public. The stock or security is defined as a sign of participation capital or ownership of a person or body in a company or limited company, in form of shares like a sheet of paper that explains who the owner is. However, now the form of ownership is no longer in the form of a sheet of paper but in the form of an account of the stock holder in a electronic systems which is free of paper.

There are two kinds of stock or securities:

1. Common shares (Common stock)
A common stock is a stock which puts the owner at the end of the entitlement to dividend or assets of the company if the company is liquidated. Another feature of this stock is that dividend is paid during the period which the company gained profit. Each of the owners of the shares usually has voting rights in the general meeting of shareholders (GMS). Ordinary shareholders have limited liability towards the other party’s claims of a proportion of the shares and have the right to transfer ownership of its shares to another party.

2. Preferred stock
Preferred stock is a stock that has a characteristic combination of bonds and common stock, because it produces a fixed income. This stock is more secure compared to common stock because it has a right of claim against the wealth of corporations and dividend distribution in advance. Preferred stock is traded like ordinary shares but difficult to obtain because the size traded is small.

By buying stock or shares the investors may benefit in form of:

1. Dividends
Dividends are profits given by the issuer of the stock and the resulting profits coming from corporations. Dividends will be distributed after approval from the shareholders in the GENERAL MEETING OF SHAREHOLDERS and is done once a year. If investors want to acquire the dividends then they must hold the stock for a certain period of time untill the stock holdings are in a period where it is recognized as time where a shareholder is entitled to a dividend. Dividends are distributed cash dividend which may be form for investors/shareholders receiving cash in accordance with the number of shares owned and the stock dividend where shareholders get the number of additional shares.

2. Capital gains
A Capital Gain is the difference between the buying price and the selling price. Capital gains are formed in the presence of stock trading activity in the secondary market. Let’s say XYZ Investors buy shares at a price per share TLKM Rp 7,000,- then sell it at a price of Rp 7,500 then XYZ investors receive a stock capital gain amounting to Rp. 500,-for each stock sold.

What is Monthly Strategy?

Is the product of daily research issued each month summarizing the investment strategy (BUY or SELL) the target index for the month, using economic reasons as well a fundamental technical & to determine trends & took the decision this month, and a selection of some of the stock portfolio per sector that is expected to be the drivers of the JCI. All in 1 simple page and “to the point”.

Is an analysis technique that is known in the financial world and used to predict a trend of stock prices by way of studying the past market data, primarily price and volume trend movements as well as the circumstances of the purchase or sale of saturated (overbought and oversold) using some indicators generate from computer.

The main idea is to use data on price movements from a while ago to determine where prices further price movement. The most important thing from a technical analysis is how such analysis is able to recognize the trend or the State of the market (overbought oversold) as early as possible.

In this technical analysis, is a concept analysis using the utilizing of a movement pattern index of historical or existing data which can be seen over the tendency over a certain period of time. Trough time, technical analysis are widely known among stock traders (or known as “trader”) and professionals in finance, but in academics are considered as pseudoscience [2] or “voodoo finance;”

Here are some of the assumptions used in technical analysis, among others: the prices are formed on the market is a reflection of the entire existing factors in the market.

Traders using technical analysis are only concerned at what is happening with the price of due to increasing supply and demand, and when  prices will go up, so does the opposite, they are not concerned with rising inflation or other fundamentals, because all of that is already reflected in the price.

History repeats itself: traders who use technical analysis believe that the behavior of investors in the past occurred repeatedly and can be used as a reference in predicting behavior in the future.

Price move in trends: technical traders and analysts do not believe that the price movement is random and cannot be predicted because the price will move in a certain direction (trend) and will continue awhile.

Support and resistance are determined by the buyers and sellers in a market

The concept of support and resistance in the technical analysis:

Support and resistance is a concept often used in trading activities. Everyone has different thoughts respectively to determine support and resistance.

The concept of the trend-line (trend line) in technical analysis:

The trend line or in the language of technical analysis is often called trend-line, is the most common form of technical analysis. Traders use this trend-line which can give with signals of reversals, retracement, to buy/sell.

The Bullish Up-trend line/Line: Is normally drawn along the point/area support (the Valley), which means at the bottom of the price movement (chart) Bearish

Down-trend Line/Second Line is drawn along the point/area of resistance (peak), which means at the top of the price movement (chart

A tool that is used to read trends in technical analysis is the (Moving Average or MA) Moving Average or MA as the simplest method and the most used in analyzing a currency movements.

Moving Average was first used by British anti-aircraft gunners in the second World War (1941) to improve tactics for Nazi aircraft shot at night.

A simple way to analyze using the MA is by looking at the intersection line of the MA with the price index. If the line above the line of the MA index then the trend is down and vice versa when the line of the MA under the line index then the trend will soon rise.

A tool that is used to read the state of the overbought and oversold condition in technical analysis (Stochastic Oscillator)

Stochastic Oscillator is a technical indicator invented by George c. Lane, a very popular and widely used tool by traders and investors in almost the entire world of financial instruments. This indicator serves to help determine the level of overbought and oversold condition in the marketplace.

Overbought and oversold explained in common terms is that the market has moved too far and too fast, so it needs a correction downwards or upwards in the near term rally.

Fundamental analysis is the analysis based on the real fundamental conditions of the specific financial company that has issued the stock.

By doing research directly on the company’s financial data, then it can be concluded whether the shares of the company worth bought or sold.

In reality the financial data that affects the financial condition of a company are abundant or even infinite. Because the data that affects the company are not only data but also the internal conditions, environmental conditions or market sentiment affecting the company.

It is indeed the fundamental factor in that company which matters much, there is a data base that can be used to retrieve data assisting in the decision of buying or selling stocks such as Book Value (BV), Price to Book Value (PBV), Earnings Per Share (EPS) and Price to Earnings Ratio (PER).

1. Book Value (BV)
Book Value or the price according to book defined as the net capital of a company divided by the number of shares in 1996.
Net capital is the company’s total assets reduced or subtracted by the total obligations. So we can see the BV of a stock and arguing that it has a cheaper or expensive price than the price of the shares of the other company listed in the exchange. To see this more clearly, then we can use the next calculation which is PBV.

2. The Price to Book Value (PBV)
Price to Book Value is defined as the price of a stock (market) divided by the book all value.
So in example we could compare the prices of the stocks in the same sector, when the price of stock has a lower PBV then we can say that the stock price is cheaper even though its market price is more expensive. PBV is indeed not taking into account the performance of the company in the future, but at least when we see a selection of PBV stocks that perform well because it is very cheap compared to other stocks in the same sector, then these stock prices that have the potential to go up in the future, so they deserved to be purchased.

3. Earnings per Share (EPS)
Earnings per share is the net income of a company compared to the number of shares it current has
Thus it may be a reference used on earnings based instead of the company’s assets. This method can be used in addition to predict stock price movements which can also predict the likely value of dividends (profits given the company at shareholders directly (without having to sell its stake) and will be accepted by these investors.

4. The Price Earnings Ratio (PER)
Price Earnings Ratio is the price of a stock divided by the EPS or earnings per share. This ratio calculates the capability of the company generating profit. The smaller a company PER figure is then the  share will be a good candidate for purchasing, because it means the company’s performance in generating profit is better.

Capital markets (Capital Market) is the market for various products of financial instruments that can be traded. The financial instruments can be equities (stocks), debt (bonds), mutual funds, derivative instruments (e.g. options) and other instruments. Capital markets can also be a means of funding for the company or other institutions (e.g. Government) and as a means of investment activities for the community.

In General, the benefits of the capital market are:

1. Provide a source of financing (long term) for the corporate world while simultaneously allowing the allocation of the funds optimally and as a means of funding for companies to get funds from the populace (investors).
2. As means for the community to make an investment, capital markets provides a diverse investment vehicle that allows investors to diversify and adapt to the characteristics of the benefits and risks of each instrument.
3. Provides a leading indicator for the economic development of a specific country.
4. The spread of ownership of the company until the middle class segment of the population.

Here are a few tips from our research in selecting shares entered into portfolio:

1. Return on Equity (ROE): Above bank credit interest
Wes should choose stocks that have a repayment rate of equity (ROE) above the cost to borrow from a bank to do that. For example if the mortgage interest from banks 11%, then ROE based shares selected should be above that. Fund managers are taking steps that are more complex, i.e. find stocks higher ROE versus the ROE average of the Jakarta Composite Index (JCI).

2. The Debt to Equity Ratio (ROE): under 2 times
Mimic stock investment ala Islamic or Sharia way that has companies with low debt (debt ratio to equity less than 2.5 times) which can also reduce the risk of investment.

But along with the State of the world’s stocks that changed, whenemiiten look will do a clear corporate actions to reduce the debt ,could be made an exception.

3. Positive Earnings (Search company profit)
Should choose companies with positive earnings growth and away from companies that experience a loss (negative earnings)

4. Large capitalization & liquid (often traded)

Yuganur Wijanarko

Senior Research

INITIAL PUBLIC OFFERING

Initial Public Offering (“IPO”) is a type of public offerings where a company (“Issuer”) offers part of their shares to the public (“Public”) for the first time and lists their shares in Indonesia Stock Exchange (“IDX”). Through this process, a private company shall be changed to a public company. Funds generated from capital market might be used by the Issuer as additional working capital, business expansion, debt repayment, etc.

Below are several advantages that can be obtained by the Issuer with IPO implementation:

1. Value and image improvement of the Issuer.
2. As financing strategy for the Issuer, including:
   • Obtaining new source of financing through IPO process;
   • Ease the Issuer’s access to banking, because by becoming a public company, the Issuer shall be more known and trusted by banks; and
   • Ease the Issuer’s access to enter money market through the issuance of both long-term and short-term bond.
3. Improve the Issuer’s competitive advantage in term of business development and sustainability, namely:
   • By selling its shares to public, the Issuer may invite their stakeholders, such as employees, suppliers, and customers to be their shareholders; and
   • By becoming a Public Company, the Issuer is required to improve their performance, hence the Issuer are constantly encouraged to perform their best.

There are several consequences that shall be faced by the Issuer if they do IPO, such as:

1. Obligations to comply with prevailing Capital Market Regulations, such as obligations to implement certain procedures in regard to Material Transaction, Affiliated Transaction, Conflict of Interest Transaction, and etc.;
2. Obligations to implement Good Corporate Governance;
3. Continuous communication with Public and capital market regulator, such as Financial Services Authority (OJK) and IDX; and
4. Tax transparency.

LIMITED PUBLIC OFFERING

Limited Public Offering (“LPO”) is a type of public offering performed by a public company (“Company”) so that investor or Public may buy additional new shares that are issued by the Company (“Additional New Shares”). The Additional New Shares are newly issued shares from the Company’s portepel using certain ratios compared to the Company’s shares prior the implementation of LPO (“Old Shares”). LPO is executed in the purpose of gaining additional capital to be used as additional working capital, financing, business expansion, debt repayment, and etc. Furthermore, the Company had to obtain Shareholders’ approval through General Meeting of Shareholders (“GMS”), prior the implementation of LPO.

In Indonesia, LPO is performed by giving Pre-emptive Rights, in which Pre-emptive Rights is a benefit attached to the Old Shares that allows the Company’s Shareholders prior the implementation of LPO (“Old Shareholders”) to buy the Additional New Shares. Hence, the Additional New Shares are offered to the Old Shareholders first and in case that there are remaining shares that are not subscribed by the Old Shareholders, those remaining shares shall be offered to public.

Furthermore, according to OJK Regulation No. 38/POJK.04/2014 regarding Increase of Capital for Public Company without Pre-emptive Rights, allows the Company to conduct increase of capital without Pre-emptive Rights in certain conditions, with following details:

1. In order to improve the Company’s financial position; or
2. In order to other than to improve the Company’s financial position, with condition that the maximum increase of capital without Pre-emptive Rights are 10% from the Company’s paid up capital that stated in the Company’s Article of Association at the time of the GMS’s Annoucement and executed within 2 years after the GMS that approving the increase of capital without Pre-emptive Rights.

In the implementation of LPO, the Company may cooperate with Financial Advisor, in which roles of Financial Advisor are as follows:

1. Assisting the Company to determine the LPO structure;
2. Assisting the Company to comply with prevailing regulations regarding LPO;
3. Assisting the Company to coordinate with needed supporting professions, such as Public Accountant, Legal Consultant, Notary, Appraiser, etc.; and/or
4. Coordinating with related institutions in regard to the LPO process, such as Financial Services Authority (OJK) and Indonesia Stock Exchange.

MANDATORY TENDER OFFER

Mandatory Tender Offer (“MTO”) is an offering to buy the remaining shares of a public company (“Company”) conducted by new controlling shareholder. In other words, MTO is a follow-up action from a party that acquires the Company (“New Controlling Shareholder”).

However, in certain conditions, the New Controlling Shareholder does not require to conduct the MTO, namely to the shares that are:

1. Owned by a shareholder that done the Acquisition transaction with the New Controlling Shareholders;
2. Owned by another party that obtained the offering with the same terms and conditions from the New Controlling Shareholder;
3. Owned by another party that in the same time is also conducting MTO or Voluntary Tender Offer for the same Company;
4. Owned by substantial shareholder(s); or
5. Owned by another Controller of that Company.

Furthermore, the New Controlling Shareholder also does not require to conduct the MTO, if:

1. The Acquisition takes place due to marriage or inheritance;

2. The Acquisition done by a party that previously does not have any share of the Company, which caused by shares purchase within every 12 months with maximum amount of 10% from total outstanding shares with the valid vote;

3. The Acquisition takes place in order to implement duties and authorities from government institution based on prevailing laws and regulations;
4. The Acquisition takes place because direct purchase of the Company’s shares that are owned by government institution as the implementation of the provision number 3 above;
5. The Acquisition takes place as the result of court decision or court decree that already has permanent legal force;

6. The Acquisition takes place as the result of merger, business spin-off, amalgamation, or the implementation of liquidation by shareholders;

7. The Acquisition takes place as the result of grants in the form of shares transfer without agreement to gain incentives in any form;
8. The Acquisition takes place because the existence of certain collateral liabilities that is determined in debt agreement and debt collateral in the Company’s restructuring that is stipulated by Government Institution or Government Agency based on prevailing laws and regulations;
9. The Acquisition takes place as the result of the implementation of Limited Public Offering with pre-emptive rights by shareholder subscription based on its rights;
10. The Acquisition takes place as the result of the implementation of Limited Public Offering without pre-emptive rights for financial position improvement;
11. The Acquisition takes place as the result of the implementation of government policy;
12. MTO, if conducted will contradict with government regulations;
13. The Acquisition takes place as the result of Voluntary Tender Offer implementation; or
14. The Acquisition that had been stated in the prospectus of equity public offering.

Furthermore, in case that after the implementation of MTO, the New Controlling Shareholder own more than 80% of the Company’s Shares, the New Controlling Shareholder have to transfer the shares to Public so that Public shareholders own 20% of the Company’s shares in minimum, at the latest 2 years after the conduction of MTO.

MERGER AND AMALGAMATION

Merger is a legal action done by 1 or more company(ies) to merge with other existing company(ies) which resulting transfer of assets, liabilities, and equity from the merging company(ies) to the company that accept the merger and furthermore legal status of the merging company(ies) shall be dissolved.

Amalgamation is a legal action done by 2 or more companies to be dissolved by incorporating 1 new company that based on law receive assets, liabilities, and equity of the amalgamating companies, and legal status of the amalgamating companies shall be dissolved.

Below are some criteria that need to be fulfilled by a Public Company that wants to perform Merger or Amalgamation (“Company”):

1. Obtain BOC Resolution approving Merger or Amalgamation plan;
2. Submit Merger or Amalgamation Statement that includes Merger or Amalgamation Plan along with other supporting documents to Financial Services Authority (“OJK”);
3. Determine the shares conversion procedure from each company that shall be merged or amalgamated to the merged or amalgamated company shares;
4. Have Audited Financial Statements of each company for the past 2 years for listed company and 3 years for non-listed company;
5. Have the Proforma Financial Statements of the merged or amalgamated company;
6. Have the analysis from independent party regarding shares valuation, fairness opinion, and legal aspect;
7. Determine the settlement of employees status, rights and obligations of the Company, and settlement of the Company’s shareholders that are not agree with Merger or Amalgamation plan;
8. Obtaining Effective Statement from OJK; and
9. Obtain approval of the Company’s General Meeting of Shareholders (“GMS”).

Furthermore, the Company is required to announce Information Disclosure to Public that have to be executed through 1 Indonesian daily newspaper that nationally distributed or IDX website, and the Company’s website. Moreover, at the same time, the Company is also required to announce the Merger or Amalgamation plan to the employees in writing.

In case that Merger or Amalgamation conducted among Listed Companies, hence:

1. For Merger, Merger Statement to OJK shall be submitted by the Company receiving the Merger; and
2. For Amalgamation, Amalgamation Statement to OJK shall be submitted by one of the Company that do the Amalgamation.

The GMS of Public Company that approving the Merger or Amalgamation is only allowed to be executed after the Effective Statement from OJK had been obtained. In the event that GMS is disapprove the Merger or Amalgamation plan, the Company is allowed to re-submit the Merger or Amalgamation Statement to OJK at least 12 months after the conduction of the GMS.

Furthermore, after the Merger or Amalgamation had been “Effective”, the Merged or Amalgamated company is require to submit the Merger or Amalgamation result report to OJK.