Government to issue Rp2.7t in bonds next week

Dadan Wijaksana, The Jakarta Post, Jakarta

The government is set to go ahead with its plans to auction some Rp 2.7 trillion (about US$300 million) worth of bonds on April 8.

The Ministry of Finance said in a press release on Friday that 42 banks, securities and brokerage firms had been selected to participate in the auction.

Most of the participants are banks including ABN-Amro Bank, Bank Buana Indonesia, Bank Central Asia (BCA), Citibank, Deutsche Bank, Standard Chartered Bank, Bank Mandiri and Bank Lippo.

The eight-year bonds, the release said, will mature on Sept. 15, 2011 and carry a fixed interest rate, to be determined on the auction day based on bids from the appointed participants.

The bonds will be used to help refinance maturing government bonds. The government has said it would issue a total of Rp 7.7 trillion worth of bonds this year. It is still not yet clear when the government will issue the next batch of bonds.

Analysts have predicted that the market would fully and quickly absorb the bonds, whose coupon rate is expected to be slightly above the weighted average interest rate of Bank Indonesia one-month promissory notes, currently standing at 11.40 percent.

Government bonds have become the center of investors' attention nowadays as they were deemed as more profitable and safer to invest in compared to other options.

While the country's equity market has been in the doldrums, making it less attractive for investors, investing in the real sector would carry an even higher risk of suffering losses, analysts have 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 since early last year.

All these have made investing in the country's bond market more attractive than ever. The fact that government bonds carry zero risks of defaulting make them even appealing to invest in.

The government has said that the issuance of new bonds to refinance the matured ones was part of attempts to manage the country's huge public debts. Without refinancing, the government will risk sending the country into a fiscal disaster, in the event of defaulting.

As of December last year, the country's domestic debts stood at Rp 650.4 trillion -- all in the form of bonds, with a large chunk of them maturing between 2004 and 2009.

Of the total domestic debts, local banks received most of them with some Rp 430 trillion worth of recapitalization bonds, while Bank Indonesia obtained another Rp 144 trillion in bonds to replace an equal amount it had spent under the liquidity support loans (BLBI).