Publication

Executive Summary

EXECUTIVE SUMMARY

In 2024, debt instruments and issuing companies generally demonstrated better performance compared to previous years, with an overall improvement in default rates that remained low. Although in 2024, three companies from the construction, mining, and property industries rated by PEFINDO failed to meet their financial obligations, the value of instruments that defaulted in 2024 was less than in previous years, namely an accumulation of IDR582.4 billion from the three companies that defaulted. This condition reflects a bond market that has begun to recover compared to 2022 and 2023, when default cases accumulated to IDR2.00 trillion and IDR5.12 trillion, respectively, and have not recurred among companies that had previously defaulted. The defaults involving the three companies and their instruments occurred at relatively low initial credit ratings, namely at A- (single-A minus) (three notches above the investment grade threshold) and BBB (triple-B) (one notch above the investment grade threshold).

Defaults in debt instruments and issuing companies only occurred in companies with relatively lower credit ratings. The AAA (triple-A) rating has remained intact, with a default rate of 0.00% throughout 2007–2024. Additionally, default rates for instruments rated AA (double-A) and A (single-A) continued on a downward trend, declining to 0.27% and 1.64% from 0.29% and 1.83%, respectively. With maintained low default rates, the A rating remains a favorite among investors, offering relatively higher yields compared to higher-rated categories while carrying lower risks than lower-rated categories. The BBB (triple-B) rating group has a relatively higher default rate than other rating categories.

The cumulative default rate of debt instruments rated and published by PEFINDO from 2007 to 2024 declined to 1.26%, while the default rate for issuing companies during the same period remained at 8.07%. By sector, the default rates for debt instruments and issuing companies in the non-financial institution (non-FIN) sector were 2.95% and 11.03%, respectively. Meanwhile, in the financial institution (FIN) sector, the rates were 0.08% and 2.95%, respectively.

PEFINDO noted that from 2007 to 2024, defaults occurred in 11 out of 67 debt instrument industry classifications and 11 out of 65 issuer industry classifications. The highest default rates since 2007 occurred in the shipping industry (SHIP), both for debt instruments and issuing companies. The majority of defaults in both instruments and issuers were due to the companies' failure to meet coupon payments at rates of 0.82% and 4.04%, respectively.

The calculation of PEFINDO’s One-Year Rating Transition and Cumulative Average Default Rate indicates improving conditions at higher rating levels. One-year rating transitions for issuers and debt instruments with higher credit ratings show better consistency and stability, a higher likelihood of experiencing upgrades, and a lower likelihood of downgrades or defaults compared to lower-rated counterparts. Meanwhile, the results of the 17-year Cumulative Average Default Rate calculation for debt instruments and issuers show a similar pattern: the longer the time horizon, the higher the default rate for each rating category. In terms of credit rating, the lower the rating (non-investment grade), the higher the default rate compared to the investment grade.