Govt launches third bond issue, this time a successful one
The Jakarta Post, Jakarta
The government has issued Rp 2.5 trillion worth of 7-year bonds, the third issue this year, drawing the interest of more than twice the amount offered, the Ministry of Finance said on Tuesday.
Fuad Rachmany, head of the debt management unit at the ministry, said that investors had bid for about Rp 5.4 trillion through an auction, meaning that the issue was 2.17 times oversubscribed.
The successful issue, he added, might have something to do with the bonds carrying a shorter maturity profile and higher yield than those of the previous issues.
The bonds issued on Tuesday, which will fully mature in 2010, carried a 12 percent fixed-rate coupon payable twice a year and was priced at a weighted average yield of 12.92 percent, a discount from the previous bond issues.
In the first two bond issues this year, conducted in April and September, the bonds were priced at the weighted average yield of 12.1 percent and 11.6 percent, respectively.
The government had to come up with such a move following its failure in its second bond issue.
Low demand at that time forced the government to scale back to around Rp 4 trillion, from the initial target of Rp 5 trillion. The eight-year tenor bonds with an average yield of 12.99 percent were believed to be less attractive to investors.
Tuesday's bond issue formed part of the government's plans to issue a total of Rp 11.7 trillion in bonds this year, to help refinance part of the huge number of bonds maturing this year, thus helping reduce the 2003 state budget deficit.
Some Rp 55 trillion worth of bonds are expected to mature this year.
After the third issue, the government still has to issue another Rp 3.2 trillion of bonds before Dec. 31.
Previously, the size of the bond issue this year was targeted at Rp 7.7 trillion, but the government decided to increase the size of the bond issue to Rp 11.7 trillion.
Asked whether the same approach would be applied in the next bond issue, Fuad said the government would leave it all to the market.
"From the government's point of view, we certainly want long- term bonds, but the market seems to be more fond of medium-term ones. So, we'll have to take a closer look at those factors as well," he said.
Bond issues are a scheme the government has used recently in a bid to reduce the burden resulting from its huge domestic debts - all in the form of bonds, both principal and interest.
The state budget has been heavily burdened by the payment of maturing bonds totaling about Rp 450 trillion that were issued in the late 1990s to bail out troubled banks.
To ease that burden on the cash-strapped state budget, the government has launched more bonds to refinance the maturing ones.