BNI cancels dollar debt issue

State-controlled Bank Negara Indonesia (BNI), the country's second-largest bank in terms of assets, said it would postpone a planned dollar-denominated bond issue amid rising economic uncertainty as a result of the falling rupiah.

BNI president Sigit Pramono said the bank's plan to issue around US$300 million in sub-debt bonds would be delayed until the third quarter of this year on fears that investors would demand overly high yields, thus raising the borrowing cost.

"We may not get the maximum benefit if we issue the bonds based as scheduled in June. The market is just not favorable. We fear that we will have to pay higher rates and costs for the issue," said Sigit after a meeting with legislators on Thursday.

The BNI, which has appointed Barclays Capital and JP Morgan for the issue, previously said the issue was aimed at raising cash to help strengthen its capital condition and finance credit expansion.

The bank has decided to expand new lending to Rp 16 trillion this year, or 86 percent higher than in 2003. As of last year, the bank had channeled a total of Rp 46.4 trillion in loans.

To support the expansion, the BNI needed to set its capital adequacy ratio (CAR) higher. At present, its CAR stands at 18.17 percent, higher than the minimum requirement of 8 percent set by the central bank.

BNI shares ended higher by Rp 50 to Rp 1,150 on the Jakarta Stock Exchange on Thursday.

The BNI's decision to cancel its bond issue follows the government's recent move to delay bond sales after investors demanded high yields amid the falling rupiah, inflationary pressure and a possible hike in interest rates.

The Ministry of Finance was scheduled to issue Rp 3.5 trillion (US$388.46 million) worth of bonds on Tuesday, however, it only received bids totaling Rp 3.1 trillion. Investors demanded an average yield of 11.74 percent, higher than the 10.72 percent yield at last month's bond auction. -- JP