Publication

Executive Summary

In 2023, debt securities instruments and issuing companies generally showed quite good performance, with the default rate being maintained and only occurring in companies with relatively low ratings. Debt instruments and issuing companies with an AAA (triple-A) rating are still maintained, with the default rate at 0.00% throughout 2007-2023. In addition, the default rate on instruments with AA (double-A) and A (single-A) rating groups decreased to 0.29% and 1.83% from 0.30% and 2.09%, respectively. With a maintained default rate, A rating is still a favorite among investors in investing because the returns are relatively higher than the ratings above but have lower risk than those below. The initial rating of BBB (triple-B) is a group that has a relatively higher default rate than other rating groups.

In 2023, two companies from the construction and mining industries rated by PEFINDO failed to fulfill their financial obligations. The accumulated value of instruments that experienced default in 2023 reached IDR5.11 trillion. The defaults that occurred in both companies and their instruments occurred at relatively low initial ratings, namely at initial ratings of A- (single-A minus) (three notches above the investment grade limit) and BBB (triple-B) (one notch above the investment grade limit).

The default rate for debt instruments rated by PEFINDO and whose ratings are published cumulatively from 2007 to 2023 is still maintained at 1.34%, while the default rate of the issuing company for the same period is 6.94%. If we look at the sector, the default rates for debt instruments and issuing companies in the non-financial institution (non-FIN) sector are 3.21% and 9.42%, respectively. Meanwhile, in the financial institution (FIN) sector, it was 0.08% and 2.56%, respectively.

PEFINDO noted that during 2007-2023, defaults occurred in 11 industries out of 67 debt instrument industry classifications and 65 issuing company industry classifications. The highest default rate from 2007 to 2023 occurred in the shipping industry (SHIP), both in debt instruments and the issuing company. Most default rates on debt instruments and issuing companies are caused by the company's failure to fulfill coupon payments, amounting to 0.87% and 3.70%, respectively.

PEFINDO's One-Year Rating Transition and Cumulative Average Default Rate calculations show increasingly better conditions at higher ratings. Rating transition after one year for issuing companies and debt instruments with higher ratings has better rating consistency and stability, a higher chance of experiencing a rating upgrade, and a lower chance of experiencing a downgrade or default than lower-ranked ones. Meanwhile, the results of calculating the Cumulative Average Default Rate over 15 years for debt instruments and issuing companies have the same pattern. The longer the period, the greater the default rate for each rating. Meanwhile, regarding ratings, the lower the rating, the greater the default rate.