Govt may issue $1.5b global bond in March

The Jakarta Post, Jakarta

The government is likely to issue up to US$1.5 billion in overseas bonds during the first quarter in an effort to finance the 2005 state budget, a senior finance official has said.

Mulia Nasution, the finance ministry's Director General for Treasury, told reporters on Monday that the issue, which would be the nation's third global bond issue, would be worth $1 billion to $1.5 billion.

"We're still studying the precise figure, but as an image- building market effort, it would be worth at least $1 billion, and could be raised to as much as $1.5 billion.

"I do not think it will reach $2 billion, as this would be too high and is suitable only for developed countries, not developing ones like Indonesia," Mulia said.

As for the timing, he said sooner would be better for the government, as it could mean "less competitors in the market".

"It's in the first quarter sometime, probably in March," he added.

The government has been relying on proceeds from bond issues -- both domestic and dollar-denominated bonds -- to finance its deficit.

However, as sentiment toward the country's economy slowly improves and reduces the risk of investing here, the costs of issuing global bonds have also fallen in proportion to the costs of issuing domestic bonds.

A more robust economic growth projection for 2005 and continuing macroeconomic stability would entice more foreign investors to the bond issue.

The economy is expected to grow 4.8 percent this year and 5.4 percent next year, from a mere 4.1 percent growth in 2003.

The government is to sell Rp 32.5 trillion in domestic and global bonds this year to help finance a deficit of Rp 26.3 trillion, which accounts for 1.3 percent of the gross domestic product (GDP).

In comparison, it plans to issue Rp 43 trillion in domestic and international bonds next year to help plug the budget deficit, estimated at Rp 17.4 trillion, or about 0.8 percent of the GDP.

Next year's global bonds will be the third to be issued.

In 1996, the government issued $400 million in maiden sovereign bonds, which are due to mature in 2006. The second bond issues was in March 2004, when the government issued $1 billion in 10-year international bonds, more than double the initially planned $400 million issue, following overwhelming demand from global investors.

The yield in the March issue was set at 6.85 percent, far lower than the current 11 percent yield set for domestic bond issues.

Elsewhere, Mulia said a small team at the ministry was still discussing everything regarding the planned issue, including actions needed to prepare the move.

As in previous bond issues, he said, the government would embark on a non-deal road show to several nations worldwide, mostly to the world's major financial centers such as U.S. cities, Hong Kong and London.

"I think we could start the road show in December," he said, adding that the tour was also especially important as a means to introduce the new government and its vision on Indonesia's future economy to the international community so that potential investors could learn about the commitments of the new cabinet towards reform.