Govt's second bonds issue fails to reach target<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
The government's second bonds issue on Tuesday turned out to be
\nsomewhat a failure, as demand from investors was insufficient,
\nforcing the government to cut the size of the issue.<\/p>\n
While the initial target had been set at Rp 5 trillion (about
\nUS$650 million), Tuesday's auction saw the government only manage
\nto issue Rp 3.9 trillion worth of bonds.<\/p>\n
Fuad Rahmany, head of the Ministry of Finance's state bond
\ndivision, told reporters that the bonds' longer-term maturity
\nprofile may be the reason for the lack of demand.<\/p>\n
"Investors may no longer be interested in long-term bonds," he
\ntold a press conference.<\/p>\n
The bonds, which carry a weighted average yield of 11.6
\npercent, are due to mature in December 2012. The bonds have an 11
\npercent coupon payable twice a year.<\/p>\n
The government had hoped to issue up to Rp 5 trillion worth of
\nbonds to help cover the 2003 budget deficit by retiring some
\nhigher-yielding bonds issued during the crisis.<\/p>\n
But, the result of Tuesday's auction paled by comparison,
\nespecially if compared to the previous bonds issue.<\/p>\n
In April, the government's first bond issue, worth Rp 2.7
\ntrillion, was a success with the bonds 2.8 times oversubscribed.<\/p>\n
To mature in 2011, these bonds carry a 12 percent fixed-rate
\ncoupon and were priced through an auction with a weighted average
\nyield of 12.21 percent.<\/p>\n
A similar success story was also recorded late last year, when
\na Rp 2 trillion bonds issue was also oversubscribed.<\/p>\n
All these have raised optimism that the government's new bonds
\nissue would be oversubscribed again particularly as foreign
\ninvestors have been looking for local assets with higher yields
\namid the global weakening of dollar assets.<\/p>\n
Darmin Nasution, the director general of financial
\ninstitutions at the finance ministry, said the government was
\nstudying the mediocre results of the new bonds issue.<\/p>\n
"We are now studying why the demand had been insufficient. It
\ncould be because the tenor is too long," said Darmin.<\/p>\n
The government has said the bond scheme is critical in helping
\nto avoid a fiscal disaster in the future and maintain investor
\nconfidence.<\/p>\n
The state budget has been heavily burdened by the payment of
\nmaturing bonds totaling about Rp 450 trillion that were issued in
\nthe late 1990s to bail out troubled banks.<\/p>\n
To ease the interest burden, the government launched the bond
\nscheme, meaning it will issue new bonds to refinance the maturing
\nones.<\/p>\n
Despite the lower-than-expected results, Fuad claimed the
\namount was enough to cover the current financial needs, and that
\nthe government still had time to better prepare its next bond
\nissue planned for this year.<\/p>\n
Previously, this year's bond issue had been earmarked at Rp
\n7.7 trillion, but the government is currently seeking approval
\nfrom legislators to increase the size to Rp 11.7 trillion due to
\nthe higher than expected budget deficit.<\/p>\n
The latest auction pushes the state bonds issue this year to
\nRp 6.6 trillion so far, meaning the government would have to
\nissue another Rp 5.1 trillion in bonds in the next three months
\nor so.<\/p>\n
The weak result could also affect the government's plan to
\nissue around $400 million worth of international bonds early next
\nyear, to help seek financing for the state budget as the country
\nwill no longer obtain financial assistance from the International
\nMonetary Fund when the existing program expires at the end of
\nthis year.<\/p>\n
Results of new bonds auction (No. FR0023)<\/p>\n
Total bids (Rp) 4,700.5 billion<\/p>\n
Total bonds sold (Rp) 3,995.5 billion<\/p>\n
Weighted average yield (%) 11.60<\/p>\n
Date of issuance Sept. 11, 2003<\/p>\n
Date of maturity Dec. 15, 2012<\/p>\n
Date of yearly interest payments June 15, Dec.15<\/p>\n
Source: The Ministry of Finance<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/govts-second-bonds-issue-fails-to-reach-target-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }