Deutsche Bank suspended from bond auctions

Deutsche Bank suspended from bond auctions

Dow Jones, Jakarta

Deutsche Bank AG Thursday said the Indonesian finance ministry has banned it from participating in the next three government bond auctions, citing its failure to pay for previous securities purchases.

Deutsche Bank said in a statement that it was unable to make the payment for Rp 683 billion (US$80.4 million) worth of treasury bonds it successfully bid in a Sept. 9 auction, due to a "technical operational matter."

Deutsche Bank said it had asked to be given more time to make the payment, but the finance ministry turned down the request.

"Regrettably, as a consequence, Deutsche Bank's allocation of bonds was subsequently canceled," the bank said, adding it remained committed to playing an important role in the local bond market.

Deutsche Bank is a major player in trading Indonesian government bonds, which means its absence from future auctions could hurt demand for issues, traders said. The ban could also complicate Indonesia's plan to sell Rp 11.7 trillion in bonds this year as part of attempts to finance its budget deficit, which is forecast to total 2 percent of gross domestic product this year.

Local media reported earlier Thursday that Deutsche Bank had mistakenly lent out the funds it was supposed to use for the settlement of the bond purchases.

A finance ministry official confirmed one participant in the auction had failed to settle its payments and had been banned, but he declined to name the bank.

Indonesia had planned to issue Rp 5 trillion in 9.25-year treasury bonds at the Sept. 9 auction but was forced to scale that back to Rp 4 trillion due to insufficient demand. Investors were unwilling to buy such long-dated securities amid fears of political turbulence linked to next year's general elections, traders said. Deutsche Bank's failure to meet its payment deadline compounded problems with that issue.

The finance ministry official said the government was able to finally raise just Rp 3.312 trillion from the treasury sale.

The shortfall means the government will have to issue a larger-than-expected number of bonds in the final quarter of this year to reach its target issuance for 2003. So far this year, the government has issued Rp 6 trillion, including the latest auction.

However, analysts said failure to meet the issue target is unlikely to have a major effect on the budget. The country could use funds from the sale of assets by the Indonesian Bank Restructuring Agency to help plug the budget deficit if bond issuance falls below expectations, Citibank said in a recent research note.