Bond market shows signs of new life<\/p>\n
By Wachyudi Soeriaatmadja<\/p>\n
JAKARTA (JP): The sharp drop in the interest rate has provided
\na more conducive climate for local companies to enter the
\nsluggish bond market.<\/p>\n
At least three companies have launched their bonds within the
\npast two months, and bond analysts estimate the number of new
\nbond issues could reach more than seven before the end of the
\nyear.<\/p>\n
Desimon, the head of Fixed Income at state owned securities
\ncompany PT Danareksa, estimated there would be at least Rp 3
\ntrillion (about US$345 million) worth of new bonds being issued
\nduring the second half of this year.<\/p>\n
\"The market is badly waiting for new quality bonds,\" he said
\nadding that the recently issued eight-year Rp 135 billion state-
\nowned pawn house company Perum Pegadaian bond was oversubscribed.<\/p>\n
The financial crisis, which hit the country in late 1997, has
\ntotally put the local bond market at a standstill. The sharp
\nincrease in the interest rate as the impact of the financial
\nauthority's measures to curb inflationary pressures made the debt
\ninstruments no longer attractive.<\/p>\n
The interest rate, which reached as high as 70 percent in
\nearly 1998, has gradually declined in line with the easing of
\ninflation rates. The bank deposit rate has dropped to an average
\nof 13 percent this month, much lower than about 16 percent prior
\nto the crisis.<\/p>\n
The low interest climate has sent signs of life through the
\nbond market.<\/p>\n
In addition to Perum Pegadaian's bonds, Danareksa is also
\nunderwriting the Rp 250 billion bonds issued by publicly listed
\nBank NISP.<\/p>\n
Danareksa said that the interest rates of the two bonds are
\nmuch more attractive than the rates offered by banks.<\/p>\n
Bank NISP five-year bonds, to be offered to the public between
\nSept. 17 and Sept. 29, would bear fixed and floating interest
\nrates.<\/p>\n
The floating rate would be about 1.5 percent to 2.5 percent
\nabove the three-month Bank Indonesia promissory notes (SBIs)
\ninterest rates on Sept. 1.<\/p>\n
The proceed of the bond would be used for the bank's credit
\nexpansion, according to Bank NISP last month.<\/p>\n
Another bond on schedule for issuance this month is publicly
\nlisted PT Indah Kiat Pulp & Paper's Rp 1.5 trillion bond, which
\nwill be offered to the public between Sept. 28 and Sept. 30.<\/p>\n
PT Bahana Securities, the lead underwriter for Indah Kiat's
\nbond issuance, said that the five and seven-year bonds would bear
\nthe coupon rates of between 16 percent and 18 percent.<\/p>\n
The proceeds of the bonds will be used to refinance the
\ncompany's matured debts, according to Indah Kiat.<\/p>\n
Fixed income director of Bahana Securities Ray Gunara said,
\nhowever, that Indonesian corporate bonds would not be attractive
\nto foreign investors due to the still high premium risk of the
\nrupiah.<\/p>\n
\"The high premium risk of the rupiah makes the cost of hedging
\nthe currency expensive,\" he said.<\/p>\n
The target market of these bonds, Ray added, would be mostly
\nlocal institutional investors such as domestic banks and
\ninsurance companies.<\/p>\n
The bond yield rates are attractive enough if they are
\ncompared to bank deposit rates but analysts doubt if the bond
\ninstruments have become the first investment choice.<\/p>\n
Desimon said in comparing the rupiah denominated Indonesian
\ncorporate bonds, foreign investors would prefer buying the U.S.
\ndollar-denominated Indonesian government Yankee bonds in the
\nUnited States market at a coupon rate of 12 percent.<\/p>\n
\"But we don't worry about that. We have a very high liquidity
\nin our domestic banking sector to absorb those new bonds,\"
\nDesimon said, referring to the high amount of cash domestic banks
\nhave put in the currently 13 percent interest rate of SBIs.<\/p>\n
According to Bank Indonesia official data, the amount of funds
\ninvested in the SBIs (by institutional investors that consist of
\nmostly banks) as of August stood at Rp 88.4 trillion.<\/p>\n
Desimon said that if only 10 percent of those funds invested
\nin SBI were converted into higher-yield-other-investment
\ninstruments like bonds, the new issuance of bonds would be well
\nabsorbed.<\/p>\n
The new bonds which will enter the market within next few
\nmonths include those to be issued by cigarettes maker PT H.M.
\nSampoerna (between Rp 500 billion and Rp 1 trillion), palm oil
\nmanufacturer PT Smart Corporation (above Rp 500 billion), paper
\nmanufacturer PT Tjiwi Kimia (Rp 900 billion) and life insurance
\ncompany PT Panin Life (estimation not known).<\/p>\n
An analyst with a private securities company said it seemed
\nthat the companies are rushing to enter the market before the end
\nof the year, if not they will face head-to-head competition with
\ntrillions worth of bonds to be floated next year as part of the
\ngovernment-sponsored bank recapitalization program.<\/p>\n
The government has issued Rp 103 trillion worth of bonds (in
\nfixed and floating rates) in recapitalizing the domestic private
\nbanks. These government bonds, which yield lower interest rates
\nbut lower risk than corporate bonds, would be tradable after
\nFebruary next year.<\/p>\n
He added that the economic crisis has also made investors
\nextra careful in purchasing corporate bonds as 14 corporate bonds
\n(some 15 percent of the Indonesian market at the time) defaulted
\nin 1998.<\/p>\n
\"A lot of bond issuing companies could not meet their coupon
\npayments or principal repayments at maturity then,\" the analyst
\nsaid.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bond-market-shows-signs-of-new-life-1447893297",
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