Govt drops third bond issue after lukewarm response
Govt drops third bond issue after lukewarm response
Urip Hudiono, The Jakarta Post, Jakarta
The government canceled plans to auction Rp 2 trillion (US$215
million) in local-currency bonds on Tuesday, following a lukewarm
response from investors.
The decision is another blow to the government's efforts to
raise funds from public debts, having earlier decided to postpone
the offering of at least $1 billion worth of dollar-dominated
bonds amid a volatile global bond market.
The government also canceled plans last week to sell a 5.02
percent stake in Bank Central Asia (BCA) after failing to obtain
a premium price for the shares.
Ministry of Finance Director General of the State Treasury,
Mulia P. Nasution, said on Tuesday the 12-year local-currency
bonds were oversubscribed, with the government receiving Rp 2.25
trillion in total bids, higher than the government's Rp 2
trillion target.
However, investors wanted yields of between 10.65 percent and
12.25 percent on the bonds, which would have been higher than the
yield in last month's bond sale. The government instead chose to
cancel the auction.
"We decided to turn down the bids because their high-yield
demands would have made our cost of borrowing too high as well,"
Mulia said, adding that the government would try to offer the
bonds again next month.
Investors' high-yield requests could have something to do with
the fact that, at present, the cost of borrowing in emerging
markets such as Indonesia is on the raise as the U.S. Federal
Reserve continues the upward trend of interest rates amid
inflation threats.
The government plans to issue a total of Rp 43 trillion worth
of domestic bonds throughout the year, including the $1 billion
of sovereign bonds, to help redeem maturing debts and finance the
state budget deficit.
In its first bond issue of the year in January, the government
sold Rp 5 trillion worth of 10-year bonds priced to yield at
10.12 percent. The sale was more than two times oversubscribed,
and was conducted through a highly vibrant auction that received
Rp 12.4 trillion in total bids from eager investors.
In the second bond issue in February, the government sold Rp 3
trillion worth of 12-year bonds with a coupon rate -- or initial
yield -- of 10.42 percent. The auction received a total of Rp
6.24 trillion in bids.
Last year, the government sold Rp 32.5 trillion worth of
bonds, including $1 billion in global bonds.
Despite predictions from many market analysts that Indonesia
would do well with its bond sales given the country's improving
credit rating, the results of the two bond sales this year
indicate the government's local-currency bonds have lost some of
their appeal: both their sale value and received bids have
declined, while their yields have increased.
Moody's puts Indonesia's long-term local currency debt rating
at B2, five levels below investment grade, while Standard &
Poor's rates the rupiah debt BB -- two levels below investment
grade. Both credit agencies give the country's ratings a positive
outlook.