Global case won't affect sub debt market: Analysts

Global case won't affect sub debt market: Analysts

Leony Aurora, The Jakarta Post, Jakarta

The Bank Global case, which could likely cause more than a dozen
big bond holders to lose billions of rupiah, would not affect the
subordinated debt market as it was caused more by "uncritical"
investments, analysts say.

An economist at Standard Chartered Bank, Fauzi Ichsan, told
The Jakarta Post on Tuesday that although subordinated bonds were
legally weaker than other types of debts, investors would still
look at them as attractive investments, especially when the
issuer was well-known by the market.

"If the issuer is a publicly listed bank with big assets and
whose owners are known, the notes will still be attractive," he
said, defying concerns that the case would hurt the prospect for
sub-debt issues.

The case was caused more by "investors who were not critical",
added Fauzi.

A treasurer at a prominent investment firm, who prefers to
remain anonymous, concurred, saying that as long as the issuer --
be it a bank or other institutions -- exercised good practices,
they should not have problems in selling their sub-debt notes.

"If the rating is good and the underwriters are good,
investors need only to review the (bank's) prospectus and check
if it makes sense," said the source.

Bank Global, whose operations were suspended for a month on
Dec. 14 by Bank Indonesia (BI), issued Rp 400 billion (US$44.30
million) of bonds in June last year.

The 10-year bond was given an A- rating by local rating agency
PT Kasnic Kredit Rating Indonesia.

Bond holders include state-owned pension fund company PT
Jamsostek (Rp 100 billion), pension unit of state oil and gas
firm PT Pertamina (Rp 70 billion), and state insurance firm PT
Jiwasraya (Rp 6 billion).

Should progress fail to be made during that period, Bank
Indonesia has the right to shut the bank down.

If that happens, then holders of Global's sub-debts would more
than likely end up empty-handed as a sub-debt is categorized as
unsecured and their holders will be the last to be paid from the
bank's assets should it get liquidated.

Jamsostek's investment director Samuel Tobing said that in
general, the bond market would remain strong next year.

"As for sub-debts, it will depend on who is the issuer of the
bonds."

Elsewhere, Fauzi said investors should consider the rating
agency used to review the bond offering. "If it's Moody's,
Standard and Poor, or Fitch, which are internationally
recognized, it will likely give a proper rating," he said.

Several banks have announced plans to issue subordinated bonds
next year. On Monday, Bank International Indonesia (BII)
announced its plan to issue between $100 million and $200 million
of sub-debt notes in January 2005 to strengthen its working
capital.

Bank Negara Indonesia (BNI), the country's third largest bank
by assets, has announced that it intended to put $300 million of
such notes on offer in the second quarter of 2005, while Bank
Niaga will issue $100 million by the end of February in the same
year.