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)