Indonesia's Yankee bond issue gets BBB rating<\/p>\n
JAKARTA (JP): The U.S. rating firm Standard & Poor's Corp. has
\nassigned a \"triple-B\" long-term foreign currency rating to the
\nIndonesian government's upcoming Yankee bond issue.<\/p>\n
The company said in a statement yesterday that the rating is
\nsupported by Indonesia's long-standing commitment to prudent
\nfiscal management, which, supported by improving resource
\nmobilization and expenditure restraint, has strengthened public
\nfinance.<\/p>\n
Yankee bonds are dollar-denominated securities sold in U.S.
\ncapital markets by non-U.S. issuers.<\/p>\n
The statement said that Indonesia's fiscal accounts have been
\nin broad balance since 1990, while the net public external debt
\nburden has declined to 75 percent of exports in 1996 from 127
\npercent in 1990.<\/p>\n
Bank Indonesia, representing the government, plans to offer
\nbonds worth US$300 million on the U.S. market. It has registered
\nits bond offering plan with the U.S. Securities and Exchange
\nCommission.<\/p>\n
The offering will be made through Salomon Bros Inc., Goldman,
\nSachs & Co., J.P. Morgan & Co. and Merrill Lynch & Co.<\/p>\n
The government has said that the proceeds of the bonds, which
\nwill mature in 2006 and be the first to be offered since 1988,
\nwill be used for general funding purposes related to its
\ndevelopment plans, not for financing the country's deepening
\ncurrent account deficit.<\/p>\n
\"It is not the money we want to get but to set a benchmark for
\nprivate offshore borrowings,\" Bank Indonesia Governor J.
\nSoedradjad Djiwandono said recently.<\/p>\n
Bond offerings made by private Indonesian companies overseas
\ngenerally have been more expensive than those floated by other
\ncountries due to the absence of government bonds.<\/p>\n
By floating government bonds, Indonesian bond issuers will
\nhave a benchmark or a guideline for setting up bond terms and
\nconditions.<\/p>\n
Bank Indonesia has issued a number of bond instruments
\noverseas in the past, including those floated in Germany, Japan,
\nthe Netherlands and Kuwait. The latest issue worth DM300 million
\nwas floated in Germany in 1988. It matured in 1994.<\/p>\n
In assessing Indonesia, Standard & Poor's has also considered
\nIndonesia's savings and investment rates of more than 30 percent
\nof gross domestic product -- among the highest in the triple-B
\nrating category. The high rate is expected to sustain Indonesia's
\neconomic growth, averaging over 7 percent per annum.<\/p>\n
The company also took into account the growth of Indonesia's
\nnon-oil exports, which are expected to grow 16 percent this year
\nand next. Non-oil exports now account for 80 percent of
\nIndonesia's total merchandise exports, helping insulate the trade
\nbalance from commodity price swings.<\/p>\n
Country rate<\/p>\n
Standard & Poor's gave Indonesia a triple-B-minus foreign
\ncurrency rating in 1992, which was upgraded in April 1995 to
\ntriple-B. The company assigned an A-plus local currency credit
\nrating to Indonesia in May of this year.<\/p>\n
Rating distinctions between an issuer's local and foreign
\ncurrency debts reflect the distinctive credit risks of local and
\nforeign currency debts. Local currency debt refers to debt
\ndenominated in the currency of an issuer's country or territory
\nof domicile. Foreign currency debt, by contrast, refers to debt
\ndenominated in other currencies.<\/p>\n
According to Standard & Poor's, a securities issuer that is
\nrated triple B has adequate capacity to meet its commitments,
\nthough adverse economic conditions or changing circumstances
\ncould lead to a weakened capacity of the issuer to meet its
\ncommitments.<\/p>\n
In its assessment, Standard & Poor's noted a robust political
\nconsensus -- rooted in decades of rapidly rising per capita gross
\ndomestic product -- in favor of market-oriented economic
\npolicies.<\/p>\n
\"Popular support is expected to underpin economic policy
\ncontinuity despite potential changes in government or political
\ninstitutions in a post-President Soeharto era,\" Standard & Poor's
\nsaid.<\/p>\n
It further noted that Indonesia's consensus-based political
\nculture, the widely shared benefits of economic development, and
\na technocratic leadership auger well for economic policy
\nstability during the transition and beyond.<\/p>\n
However, Standard & Poor's cautioned that the country's
\ncredit-worthiness could be threatened by pressing infrastructure
\nneeds, heavy overall external debt burdens and a weak banking
\nsystem.<\/p>\n
It said substantial infrastructure development needs -- in the
\ncontext of low per capita income -- will, in the medium term,
\npressure government finances.<\/p>\n
Indonesia's heavy -- although favorably structured and
\ndeclining -- net external debt burden equal to 136 percent of
\nexports reduces its external financial flexibility.<\/p>\n
As for political risk, Standard & Poor's said that the
\neventual political transition may slow, but not derail, the
\nongoing macroeconomic reform process and the uneven trend toward
\nimproving transparency.<\/p>\n
The company predicted that Soeharto is likely to run again and
\nbe re-elected in the 1998 presidential election. It noted,
\nhowever, that Soeharto's eventual exit from politics will test
\nconfidence and challenge his successors to maintain support for
\neconomic policy orthodoxy and further structural reform.
\n(rid\/hen)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/indonesias-yankee-bond-issue-gets-bbb-rating-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}