Banks allowed to sell government bonds

JAKARTA (JP): Bonds worth over Rp 200 trillion (US$28.5 billion) issued by the government this year to finance the recapitalization of state and private banks will be tradable by early next year, a senior official at Bank Indonesia said here on Monday.

Bank Indonesia's deputy governor Miranda Gultom said the treasury bonds would be traded in stages, starting in February.

The trade of the government-issued bonds by state and private banks would be conducted gradually so as not to shock and upset the local bond market, she added.

"We do not want to ruin bond prices by flooding the market with new bonds," Miranda said.

The fixed schedules on the sales of the treasury bonds by recapitalized banks were being discussed at the central bank, she said.

She said the timing would be adjusted to the country's ongoing overall economic and banking conditions and the interest rates on the central bank's one-month deposit certificate (SBI) rate.

Miranda said the government bonds would be offered at a rate of between 12 percent and 14 percent per annum.

She said the bonds would be attractive to investors in the secondary market if the SBI rate was lower than the bond's coupon rates, which have maturity rates of between three to 20 years.

"The SBI rate should decline to between 10 percent and 11 percent if we want to make the bonds attractive enough to investors," she told reporters at a break in a seminar on capital markets organized by the newly established Capital Market Journalists Club.

Speakers at the seminar included the president of state Bank Mandiri Robby Djohan, economist Sri Mulyani Indrawati and chairman of the Capital Market Supervisory Agency (Bapepam) Jusuf Anwar.

Miranda said in total the government had issued Rp 370 trillion worth of bonds to finance the recapitalization of the country's ailing banks and to repay the central bank's liquidity support credits (BLBI) to the banks.

Some Rp 103 trillion worth of bonds were issued for state Bank Mandiri and another Rp 103 trillion for private banks, provincial banks and the export-import agreement.

"And on top of that we have another Rp 164 trillion issued to Bank Indonesia for the government repayment of the central bank's liquidity support credit," she said.

The government will issue bonds worth up to Rp 570 trillion to finance 80 percent of the cost of the bank recapitalization program. In return, it is taking equity in the banks.

However, the banks have not yet been allowed to trade the bonds, something many of them want to do in order to raise badly- needed cash. The banks will instead receive only interest payments from the government.

The cost of recapitalizing Bank Mandiri alone could reach between Rp 150 trillion to Rp 160 trillion, up from an initial estimate of Rp 137.8 trillion, the bank's president Robby Djohan said.

Robby said Bank Mandiri, a new bank created from the merger of the country's four banks, was currently undergoing a due diligence audit to determine the amount of the final cost of its recapitalization.

"The audit is slanted to be completed later this month," he said.(udi)