Local bond market picks up on lower interest rates<\/p>\n
JAKARTA (JP): The local bond market has been consistently
\npicking up since mid-April due to declining interest rates, an
\nanalyst said on Wednesday.<\/p>\n
Kahlil Rowter, the head of Fixed Income Research at state-
\nowned investment company PT Danareksa said bond trading on the
\nJakarta and Surabaya stock exchanges was clearly more active.<\/p>\n
He said bidding prices had also improved to a range between 80
\npercent and 90 percent of the bond's face value, from about 50
\npercent to 60 percent earlier this year.<\/p>\n
\"Investors are eager to buy bonds for their investment, but
\noften there are not enough quality bonds to purchase in the
\nmarket,\" he said.<\/p>\n
Rowter said it was high time sound companies that needed
\nexternal financing took advantage of the current condition to
\nissue bonds.<\/p>\n
\"Domestic banks for example, are now overliquid and would like
\nto invest in bonds, because they cannot lend money to the real
\nsector for the time being due to continuing high lending rates.\"<\/p>\n
Higher lending rates charged by banks had discouraged
\ncompanies from obtaining loans, he said, adding that local banks
\ncurrently charged their borrowers interest rates of about 30
\npercent per annum despite low deposit rates.<\/p>\n
Most local banks have lowered interest rates on their one-
\nmonth deposits to about 20 percent, with some banks, including
\nstate banks, even cutting rates to as low as 14 percent.<\/p>\n
Kahlil said the low interest rates had caused many pension
\nfunds and other institutional investors to seek other investment
\nalternatives such as bonds, which usually offer higher returns.<\/p>\n
The value of the country's domestic corporate bonds floated on
\nlocal exchanges, mostly on the Surabaya Stock Exchange, have
\nreached a total of Rp 12.9 trillion.<\/p>\n
\"Our current projection is that there will be a number of new
\nissuances of corporate bonds, worth between Rp 3 trillion and Rp
\n5 trillion, during the second semester of this year,\" he said.<\/p>\n
During the first semester, there were no new issuances of
\nbonds, while for the whole of 1998 there was only one issuance of
\na new bond worth only Rp 64 billion by state-owned mortgage house
\nPegadaian.<\/p>\n
An analyst, who requested anonymity, told The Jakarta Post
\nthat investors might not be interested in the new issuance of
\ncorporate bonds, but instead would choose to wait for the lower
\nrisk government bonds.<\/p>\n
\"Besides, there are very few good quality companies here that
\nare qualified to issue bonds,\" he said, adding that companies in
\nthe pulp and paper industry could be one of those to qualify.<\/p>\n
Kahlil said Danareksa had just finished the preliminary
\nassessment for the new issuance of corporate bonds of four
\ncompanies.<\/p>\n
\"The issuance of these companies' bonds are subject to the
\nCapital Market Supervisory Agency's (Bapepam's) approval.\"<\/p>\n
He said the four companies -- from the finance, consumer and
\nmanufacturing sectors -- were companies of good standing which
\nhad not defaulted with any of their creditors.<\/p>\n
Kahlil said issuance of the new bonds could inject life into
\nthe local bond market which has relatively few liquid bonds.<\/p>\n
Easy-sell bonds currently in the market included bonds issued
\nby state owned electricity company PLN and state owned mortgage
\nhouse Pegadaian, he said.<\/p>\n
\"The problem now is that it is not always easy to find the
\nsellers of these types of bonds in the market.\"<\/p>\n
He said good quality corporate bonds must be able to compete
\nwith government issued bonds.<\/p>\n
The government expects to issue bonds worth over Rp 350
\ntrillion to recapitalize the country's ailing banks. The bonds,
\nsome of which have been issued, will be traded in the secondary
\nmarket some time next year. (udi)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/local-bond-market-picks-up-on-lower-interest-rates-1447893297",
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