Sat, 27 Jul 1996

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)