According to the Asian Development Bank (ADB), as of 30 June 2020, the total outstanding balance of tradable Indonesian government bonds stood at $217 billion, while outstanding corporate bonds were valued at $30.12 billion. As the market continues to grow, credit rating agencies’ role is a necessary accompaniment to bond issuance following the regulatory authorities’ policy. Investors most often use credit ratings to assess risks and compare different issuers and securities when making investment decisions and managing their portfolios.
Nevertheless, credit rating is a highly concentrated industry, with the “Big Three” rating agencies controlling approximately 95% of the business globally. Moody’s Investors Service and Standard & Poor’s (S&P) together hold 80% of the global market, and Fitch Ratings controls a further 15%. However, in Indonesia, PT Pemeringkat Efek Indonesia (Pefindo) has successfully gained the domestic market’s trust and broke the Big Three’s domination by accounting for an 81.7% market share in the local corporate debt market. Pefindo is the only locally-owned credit rating agency acknowledged by the Financial Services Authority (OJK) and Bank Indonesia.
Pefindo was established on 21 December 1993, through the initiative of the Capital Market Supervisory Agency (now the OJK) and Bank Indonesia. The company is owned by 86 entities with Bank Indonesia’s Pension Fund Institution and PT Bursa Efek Indonesia (BEI) as the majority shareholders with 22.69% and 32.37% of ownership, respectively.
“Basically, we assess companies’ financial strength, especially their ability to meet payments, of principal and interest, of their debts. The rating assigned to a given debt shows an agency’s level of confidence that the borrower will honor its debt obligations as agreed,” says Pefindo president director Salyadi Saputra.
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