Govt bonds have yet to lure foreign buyers

JAKARTA (JP): The government's multibillion dollar bonds traded on the local market last week have yet to attract foreign investors given the uncertainty in the monetary field.

The head of Asian Fixed Income Research at the New York-based Chase Manhattan Bank, Greg Batey, said investors were still reluctant to enter the Asian debt market, including that of Indonesia, due to the volatility of their currencies and interest rates.

"International investors are indeed taking into account the currency risk and interest rate risk of the country they are investing in," Batey said.

The Indonesian government issued more than Rp 200 trillion worth of bonds last year to finance the recapitalization program of both state and private banks.

The bonds were issued on the banks to boost their capital adequacy ratio to the mandatory 4 percent minimum. The banks obtain cash from the coupon rate of the bonds before they are sold in the secondary market.

Portions of these bonds are now being traded on the Surabaya Stock Exchange.

Among other bonds already traded are those of state Bank Mandiri, Bank Lippo, Bank Universal, Bank Bukopin, Bank Artha Media and seven other banks.

The fact that the government did not give clear information on the historical data of the bonds and the procedure to purchase them also discouraged investors, he said.

"They need to build a bond yield curve which will then serve as the basis referred to for pricing the debt instruments," he said in a news conference held by Chase Manhattan Bank in Jakarta.

Unlike the government bonds, international investors were upbeat about Bank Indonesia's short-term promissory notes (SBIs).

"In our monthly strategy we identified 3-month SBIs as something that investors ought to consider," Batey said.

Agreeing with her colleague about the short-term investment in Indonesia, Joyce Chang -- another Chase Manhattan Bank executive -- recommended international investors to enter Indonesia when the rupiah's value was stronger than 7,400 against the U.S. dollar.

"We recommend staying in very short instruments and picking an entry point when the currency is above 7,400," she said.

And the fact that there was no hedging facility to cover international investors against the sharp fluctuation of the rupiah's value in the long term was also a factor why they were not interested in the rupiah denominated government bonds, she added.

"Local currency (investment) tends to be a more short-term investment for the very reason that investors are worried how they would hedge the risk of holding onto rupiah," she said.

There would not be much need for hedging if investors were exposed to rupiah for only one to three months for example on SBI's, said Chang.

Meanwhile, according to Batey, international investors were interested in Asian government bonds, particularly Indonesia's, that were issued in a foreign currency and traded overseas.

In fact, Indonesia's U.S. dollar denominated sovereign bonds, traded in the U.S., were the best performing among Asia's sovereign benchmarks in 1999, he said.

"It was the most volatile, yet the best performing," he said, adding that investors willing to stomach volatility in Indonesia last year were well rewarded.

Indonesia's sovereign bonds gave a return of 39.78 percent last year, the top among Asian sovereigns, according to Chase Manhattan Bank's data. (udi)