Government's Yankee bonds oversubscribed

Government's Yankee bonds oversubscribed

JAKARTA (JP): Bank Indonesia floated Yankee bonds on Thursday
worth US$400 million on the New York Stock Exchange, the
government's first obligation issued in the United States.

Bank Indonesia Governor J. Soedradjad Djiwandono said that the
demand for the 10-year bonds -- which received BBB from Standard
and Poor's and BAA3 from Moody's -- was very encouraging.

"The bond offering was oversubscribed by more than 200
percent," the central bank governor was quoted by an Antara
correspondent as saying in New York.

He said that the coupon rate of the bonds, whose total value
was increased to $400 million from their initial size of $300
million, was set at 7.75 percent or 100 basis points over the
U.S. treasuries.

The lead underwriter of the bonds was Solomon Brothers, with
Goldman Sach, JP Morgan and Merrill Lynch acting as co-managers.

Soedradjad said that the underwriting fee of the bonds, the
first obligation issued by the government since 1988, was set at
0.65 percent, while the price was fixed at 99.48 percent of the
par value.

The central bank governor said the level of the coupon rate of
the government bonds was reasonable enough, much better than the
higher-rated bonds issued by the Chinese government.

He said the coupon rate of the bonds issued by the Chinese
government earlier this month was set at 110 basis points over
the U.S. treasuries.

"The low rate reflects investors' strong confidence on the
fundamentals of the Indonesian economy," Soedradjad said, adding
that the low pricing also satisfied the central bank's
expectation to establish the bonds as the benchmark for
Indonesian bonds overseas, especially those floated by private
companies.

He acknowledged that the Indonesian government initially
planned to issue $300 million bonds, but later raised the value
to $400 million.

"The value should be increased so that the bonds would be
liquid enough on the secondary market. If the bonds are liquid,
they will function well as a benchmark," he said.

He said that in addition to setting a benchmark, the issuance
of the bonds was also designed to diversify the government's
financial sources.

Proceeds of the bonds, which are due in 2006, will be used for
general funding purposes related to Indonesia's development
plans.

Bond offerings made by Indonesian private companies overseas
were generally more expensive than those floated by other
countries due to the absence of the government bonds.

By floating the government bonds, Indonesian bond issuers will
have a benchmark or a guideline in setting up terms and
conditions of their bonds.

Bank Indonesia issued a number of bond instruments overseas in
the past, including those floated in Germany, Japan, the
Netherlands and Kuwait. The latest issue, worth DM300 million,
was floated in Germany in 1988. It matured in 1994. (hen)