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Saturday, February 28, 2009

Indonesia has just sold $3b in dollar bond

Aditya Suharmoko and Mustaqim Adamrah , The Jakarta Post

Indonesia has just sold US$3 billion in medium-term notes, the country’s largest ever dollar-denominated bond sale, to help plug the growing state budget deficit.

The Southeast Asia’s largest economy has sold $2 billion of 10-year bonds, with a yield of 11.75 percent, and $1 billion of five-year bonds, with a yield of 10.5 percent, according to a Finance Ministry statement Friday.

The yields of 10-year notes and five-year notes are 8.759 percentage points and 8.474 points respectively, higher than similar-maturity US Treasuries, Bloomberg reported.

Anggito Abimanyu, the ministry’s head of fiscal policy, said the bonds would help cover the budget deficit of Rp 139.5 trillion, equal to 2.5 percent of gross domestic product (GDP), and increase forex reserves.

“Our trade surplus has declined;, while there has been a capital outflow from our investment portfolio. The source from where we can maintain our forex reserves is foreign debts,” said Anggito.

He added the yields were within the government’s “benchmark”.

Finance Ministry director general of debt management Rahmat Waluyanto said the yields rose due to a “repricing of risk” as the perception of global economic risks rose.

“Yields rise not only for Indonesia’s bonds; but also Brazil’s, between 300 basis points and 400 basis points,” he said.

He added the government decided to go on with the sale to plug the deficit and to develop market confidence in Indonesia’s bonds.

“We are maintaining investors’ confidence. They have a high enthusiasm, we don’t want to disappoint them.”

The notes triggered total orders of $7.25 billion from 200 investors.

Anggito said the government initially wanted to sell between $1.5 billion and $2 billion of bonds, but decided to sell $3 billion as the market situation would likely become worse later this year, thus increasing bond yields.

The bonds are expected to be settled within a week, increasing Indonesia’s forex reserves, which stood at $50.87 billion as of January.

The government also plans to issue dollar sukuk (Islamic bonds). No details have been announced yet.

“For a while, we won’t issue global bonds anymore. But in our pipeline, there are global sukuk, samurai bonds and drawdown options, which we can use,” said Rahmat.

“The global medium-term notes were issued at the right time. Samurai bonds will be issued in June, considering those need preparation for the first issuance,” he added.

In the 2009 budget, the gross amount allocated to issue of bonds is Rp 99.7 trillion — but the government should look for another Rp 44.5 trillion in loans after the budget was adjusted earlier this week to accommodate extra efforts to shield the economy from the global crisis.
Under the budget adjustment, the government will allocate Rp 73.3 trillion to the stimulus package.

Rahmat said the government had so far issued Rp 56 trillion in bonds.

Bank Indonesia (BI) governor Boediono said the bonds would add to the central bank’s forex reserves, increasing the amount of dollars available to strengthen the rupiah.

“The bilateral swaps and government borrowings will strengthen our ammunition,” he said.

Separately, economist-turned-lawmaker Dradjad H. Wibowo said the bond yields were too high.
The Philippines recently sold $1.5 billion of 10-year notes with a 8.5 percent yield, Bloomberg reported, 3.25 percent lower than Indonesia’s 10-year bonds.

“When the global market is bearish, the government shouldn’t have insisted to issue global medium-term notes,” said Dradjad.

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