Bonds market bustling this year : analysts

Bonds market bustling this year : analysts
JP/13/Bonds

Bond market bustling this year: Analysts

A'an Suryana
The Jakarta Post
Jakarta

The domestic bond market is expected to thrive this year as
investors are shifting funds from bank deposits due to a lower
interest rate environment, and from the volatile stock market.

"It is likely that people will invest more in bonds this
year," Raden Pardede from Danareksa Research Institute told The
Jakarta Post last week.

According to Pardede, people would eventually reduce their
exposure in stocks due to their declining values as equity
markets worldwide fall together with plunges in the U.S. market.

"The decreasing value of stocks has made people refrain people
from investing in the stock market, fearing that they might lose
more money," Raden said.

Investing in bank deposits is not so attractive either amid
declining interest rates as Bank Indonesia has been trying to
guide its benchmark interest rate lower.

The interest rate on the one-month Bank Indonesia SBI
promissory notes has declined to around 14.7 percent from over 17
percent earlier this year.

In comparison, bonds are now offering coupon rates of between
17 percent to 18 percent, while bank deposit rates hover at
around 13.5 percent.

"Therefore, investors have begun to change preferences and are
looking more at investing in bonds," said Raden.

Pension funds have reportedly increased their exposure in
bonds also. For instance, PT Dana Pension Jasa Marga, the
pension unit of state-owned toll road operator PT Jasa Marga, is
planning to invest up to 50 percent of its total funds in bonds
this year, compared to 45 percent or around Rp 45 billion
previously.

According to data from the Surabaya Stock Exchange (BES),
transaction volume on bonds issued by corporations surged to Rp
2.50 trillion in the January to July period this year, compared
to only Rp 1.12 trillion for all of last year.

Transactions on government bonds were also robust as shown by
the January-July period in which the volume had already reached
Rp 60.96 trillion compared to Rp 64.69 trillion for all of 2001.

The government issued some Rp 430 trillion worth of bonds in
the late 1990s to bail out ailing banks. A portion of the bonds
are now being traded in the secondary market.

Raden said that transaction volume on dollar-denominated bonds
for the January-July period of this year had already reached
US$555 million, compared to $541 million in 2001.

Analysts said that investors have been keen on investing in
dollar-denominated bonds because they often carry a coupon of 10
percent to 11 percent, compared to the interest rates of dollar
bank deposits which average around 1.5 percent.

The recent bond issue by giant instant noodle maker PT
Indofood Sukses Makmur got a strong response from investors,
prompting the company to raise the size of the issue to $280
million from the initial plan of $200 million. The dollar bonds
carry an interest rate of 10.3 percent.

The stronger investor appetite for bonds has also encouraged
companies to issue bonds to raise cash for working capital, said
Achmad Fadjar, a senior treasury officer at state-owned Bank
Mandiri.

Retailer PT Matahari Putra Prima Tbk. and multi finance firm
PT International Federal Finance are among the companies which
will soon issue bonds.

According to data from BES, Matahari will carry out a book
building process on Aug. 20, with a total bond issue estimated at
Rp 300 billion.

International Federal Finance is planning to issue some Rp 200
billion worth of bonds.

"If the bonds are sold out, it could also be seen as evidence
that investor confidence in the local corporate sector is turning
around," he said.

Not only domestic investors, foreign investors are also
increasingly attracted to invest in the Indonesia bond market.

Fauzi Ichsan, an economist at the Standard Chartered Bank,
said that after the Wall Street downturn, investors have been
chasing bonds outside the U.S. market, including Indonesia.

But Fauzi was quoted by the Kontan weekly as saying that the
foreign hedge funds and fund managers entering Indonesia were
only for the short-term investment due to lingering uncertainties
here.

Fauzi said that a perception of a corrupt legal system was
still a major stumbling block for investors to invest in
Indonesia.

Despite the bustling bond market, analysts warned investors to
be prudent in investing their money in the market.

"Investors should invest only in bonds, which are being
offered by companies with good fundamentals," said Pardede.

Transaction volume of corporate bonds

Year Volume (Rp trillion)

2001 1.12

2002

January 0.145

February 0.152

March 0.061

April 0.631

May 0.366

June 0.511

July 0.634

Source: BES

Transaction volume of government bonds

Year Volume (Rp trillion)

2001 64.69

2002

January 4.86

February 10.56

March 8.45

April 3.72

May 10.14

June 9.04

July 14.19

Source: BES