Market analysts skeptical about government bonds<\/p>\n
JAKARTA (JP): The Rp 103.83 trillion (US$12.82 billion) worth
\nof government bonds issued last week are unlikely to receive a
\ngood response from foreign investors when they are launched in
\nthe secondary market next year, according to local analysts.<\/p>\n
Alferno Sunardji, head of the fixed-income division at PT
\nSigma Batara Securities, said on Monday foreign investors would
\nremain reluctant to invest in rupiah-based bonds because of
\nanticipated volatility in the currency, particularly in view of
\ncontinuing political and social uncertainties.<\/p>\n
\"Unless there's a significant positive development in the
\nsocial and political condition, only a limited amount of the
\nbonds will be absorbed by the market,\" he told The Jakarta Post<\/p>\n
On Friday the government announced the flotation of bonds
\nworth Rp 103.83 trillion to recapitalize 11 private banks and 12
\nprovincial development banks.<\/p>\n
The bonds carry two types of interest rates.<\/p>\n
The floating-rate bonds worth Rp 95.15 trillion have an
\ninterest rate linked to Bank Indonesia's 3-month SBI promissory
\nnote rates, payable on a quarterly basis, and with a maturity
\nperiod of between three to 10 years.<\/p>\n
The fixed-rate bonds worth Rp 8.68 trillion, with a maturity
\nperiod of five years and 10 years, carry fixed interest rates of
\n12 percent and 14 percent respectively.<\/p>\n
The bonds will be registered on the banks' balance sheet as
\ngovernment equity shares to lift their capital adequacy ratio
\n(CAR) to the minimum 4 percent level for the private banks, and
\nto the 8 percent level for the development banks.<\/p>\n
CAR is the ratio between capital and risk-weighted assets.<\/p>\n
The government will allow the bonds to be traded in the
\nsecondary market at the start of 2000 after all preparations are
\ncompleted, particularly those relating to Y2K compliance.<\/p>\n
Alferno considered foreign investors as the only potential
\nbuyers of the bonds, because local investors no longer had
\nsufficient funds to make the investment.<\/p>\n
\"Liquidity is quite tight among local investors. A daily
\nturnover of Rp 50 billion in current corporate bond issues is
\nalready considered big enough.\"<\/p>\n
Alferno added that foreign investor enthusiasm for the bonds
\nwould depend on political and social stability in the country.<\/p>\n
President of securities firm PT Tri Megah Securindo Lestari
\nDavid Chang concurred.<\/p>\n
\"Foreign investors are currently only looking at U.S. dollar-
\nbased bonds because they're still uncomfortable with the rupiah,\"
\nhe said, adding that investors could remain edgy over the next
\nsix to 12 months.<\/p>\n
But he disagreed with Alferno's pessimism about local
\ninvestors.<\/p>\n
\"There will be a strong demand from local investors,
\nparticularly from pension funds, because the instruments are
\nstate bonds.\"<\/p>\n
Laksono Widodo, head of research at ING Baring Securities,
\nsaid the coupon rate of the bonds should have been set at a
\npremium to the 3-month SBI note rate, due to Indonesia's high
\ncountry risk.<\/p>\n
He said Indonesia's country risk would remain very high until
\nnext year.<\/p>\n
\"There's a strong likelihood that the banks won't sell the
\nbonds into the secondary market early next year,\" he said, adding
\nthat a lively secondary market might only return in two years
\ntime.<\/p>\n
Indonesia has been mired in political infighting and social
\nunrest since the downfall of former strongman Soeharto in May
\nlast year when the economic crisis heightened.<\/p>\n
Riots have occurred in several parts of the country ahead of
\nthe upcoming June 7 general election, the country's first open
\nand multi-party election after more than 30 years under the
\nauthoritarian rule of Soeharto.<\/p>\n
Although many analysts welcome the government bonds issue as a
\npositive step for the bank recapitalization program, some have
\nbeen discouraged by the slow progress made in efforts to recover
\nmassive non-performing bank loans, the bulk of which are owed by
\nwell-connected businessmen.<\/p>\n
Analysts say the bank recapitalization program and corporate
\nrestructuring are essential for the economy to recover from the
\ncrisis. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/market-analysts-skeptical-about-government-bonds-1447893297",
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