Analysts question market capacity to absorb govt bonds<\/p>\n
JAKARTA (JP): Analysts have cautiously welcomed the planned
\nsecondary offering of the government's multibillion-dollar bond
\nissuance, questioning the capacity of the domestic market to
\nabsorb the huge size of the bonds.<\/p>\n
\"The sentiment is there because the interest rate is
\ndeclining. But what I'm very concerned about is the capacity of
\nthe market to absorb the bonds,\" said Fonny Yulika from the fixed
\nincome division of PT Vickers Ballas Tamara.<\/p>\n
She said the current turnover of the domestic bond market was
\nin the \"tens of trillion of rupiah\", compared to more than Rp 200
\ntrillion (US$28 billion) worth of treasury bonds to be tradable
\nin stages starting February.<\/p>\n
The central bank has said trading of the government-issued
\nbonds by state and private banks would be conducted gradually in
\norder not to disrupt the local bond market.<\/p>\n
\"But even if the size of the first stage is Rp 30 trillion, it
\nis still too large,\" Fonny said.<\/p>\n
She said investors would be interested in subscribing to the
\nbonds, but they would not unload all their existing investment in
\nbuying the government's bonds.<\/p>\n
Head of fixed income at PT Sigma Batara Alferno Soenardji
\nconcurred.<\/p>\n
He said the huge size of the bond issuance raised concerns
\nabout its market liquidity.<\/p>\n
\"I can't predict the market liquidity (of the bonds) yet. But
\nif the supply is bigger than demand, it will have poor
\nliquidity,\" he said.<\/p>\n
\"With such a huge bonds' supply, it's difficult to have the
\nmarket liquidity as expected by public investors.\"<\/p>\n
The government issued more than Rp 200 trillion worth of bonds
\nthis year to finance the recapitalization program of both state
\nand private banks.<\/p>\n
The bonds were injected into the banks to boost their capital
\nadequacy ratio to the mandatory 4 percent minimum. The banks
\nobtain cash from the coupon rate of the bonds.<\/p>\n
Bank Indonesia is preparing the infrastructure of the
\nsecondary bond market to allow trade in the bonds.<\/p>\n
Bank Indonesia deputy governor Miranda Goeltom said on
\nThursday that all preparation for trading of the bonds was
\nexpected to be completed in January, after the threat of the Y2K
\nbug passed.<\/p>\n
She said she could not state the size of the bonds to be
\noffered during the first stage because discussions and
\npreparations were continuing.<\/p>\n
\"What's important is stability of the social and political
\ncondition to make the bonds attractive,\" she said on the
\nsidelines of a seminar.<\/p>\n
Miranda said recently the government bonds would be offered at
\na coupon rate of between 12 percent and 14 percent.<\/p>\n
She expected the central bank benchmark interest rate to fall
\nto between 10 percent and 11 percent to ensure the bonds were
\nattractive.<\/p>\n
The interest rate of Bank Indonesia's one-month promissory
\nnotes is currently 13 percent.<\/p>\n
The bonds have a maturity of between three years and 20 years.<\/p>\n
Alferno said the bonds should ideally have a coupon rate of 1
\npercent to 2 percent higher than bank time deposit rates,
\ncurrently a little higher than 13 percent, to make them
\nattractive.<\/p>\n
\"But the problem once again is market liquidity,\" he said.<\/p>\n
He said that domestic banks, which during the precrisis period
\nwere major bonds investors, could no longer be expected to
\nparticipate as only a few of the banks currently had enough cash.<\/p>\n
He said the remaining market potential consisted of companies
\nwith strong cash flow.<\/p>\n
Fonny said a large oversupply of bonds in the market would
\nlead to agents asking for a sizable discount, which in turn would
\npush down the price of the bonds.<\/p>\n
She said that one way to improve the capacity to absorb the
\nbonds was by inviting foreign investors to participate.<\/p>\n
However, she acknowledged that foreign investors continued to
\nview the country as a risky investment. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/analysts-question-market-capacity-to-absorb-govt-bonds-1447893297",
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