Govt bonds may lower cost of credit
Govt bonds may lower cost of credit
JAKARTA (JP): The issuance of government junk bonds in the
United States can serve as an appropriate benchmark to help lower
the coupon rates of Indonesian private debt instruments, now
considered as being too high, executives said yesterday.
Hendrik J. Kranenburg, the executive vice president of
Standard and Poor's Ratings Service said that with the issuance
of the government bonds, investors and debt arrangers will have
an appropriate benchmark in fixing the prices of Indonesia's
private debts.
"I think the issuance of the government bonds is good enough
to prevent mispricing," Kranenburg said on the Indonesian
government's plan to offer US$300 million worth of junk bonds in
the United States.
Kranenburg is here to sign a cooperation agreement with
Pefindo, Indonesia's only rating agency.
Bank Indonesia -- the central bank -- in representing the
government, formally registered its bond offering plan with the
Securities and Exchange Commission of United States two weeks
ago.
The central bank said recently that the issuance of the bonds,
which received a triple-B rating from the U.S.-based Standard &
Poor's last week, will be designed to set up a benchmark for
Indonesia's private borrowings, rather than to raise funds.
According to the central bank, many bonds floated by private
Indonesian companies received higher coupon rates than those
issued by companies from other developing countries.
The cost which should be paid by Indonesian borrowers was
higher, because debt arrangers had no benchmark or indicator to
fix their prices.
Pefindo's president, Farid Harianto, said the impact of the
issuance of the government bonds in reducing the interest rates
of Indonesia's private debts would be significant.
"The price of private debts could decline by between 100 and
50 basis points from the impact of the issuance of the government
junk bonds," he said.
Farid noted that Indonesian's bonds with double-B ratings were
priced at 350 basis points above the U.S. treasury notes, much
higher than 150 to 200 basis points charged on the same type of
debt instruments floated by American companies.
Standard & Poor's gave Indonesia a triple-B-minus foreign
currency rating in 1992, which was upgraded in April 1995 to
triple-B. The company assigned an A-plus local currency credit
rating to Indonesia in May of this year.
According to Bank Indonesia, proceeds of the bonds -- the
first to be offered since 1988 -- would not be used to finance
the country's current account deficit.
"It is not the money we want, but a benchmark for private
offshore borrowings," central bank Governor J. Soedradjad
Djiwandono said recently.
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, with a maturity in 1994. (hen)