Govt prepares bond sale to plug budget deficit

Govt prepares bond sale to plug budget deficit

Bloomberg, Jakarta

Indonesia invited banks to make proposals for a sale of bonds, as record oil prices force the government to borrow abroad for the second time this year to help plug a budget deficit, a finance ministry official said.

"We sent invitations to all international investment banks to advise on a sale," Rahmat Waluyanto, a director of the ministry's debt management unit said in an interview on Thursday.

"The timeframe has not yet been scheduled. It will depend on our budget needs." He declined to say how many banks were invited or how much the sale may raise.

The government of Southeast Asia's largest economy is seeking to reduce an estimated Rp 40 trillion (US$3.87 billion) budget shortfall this year, amid a slide in its currency to the lowest in three and a half years and waning investor confidence. Dollar demand and the cost of oil imports are rising in Indonesia, which is the only OPEC member that's a net importer of the fuel.

"The worry is the shortage of dollars," said Desmond Soon, who manages about $200 million of debt at Pacific Asset Management in Singapore. "The market is watching their reserves position."

The rupiah fell 0.7 percent to 10,341 against the dollar as of 1:15 p.m. in Jakarta, according to data compiled by Bloomberg, bringing declines for the year to 10.4 percent, the most among major Asia Pacific nations. Oil prices are forcing the government to buy dollars and dip into its foreign exchange reserves.

Indonesia's Coordinating Minister for the Economy, Aburizal Bakrie, said on Wednesday a weakening of the rupiah would not lead to a slump in the country's foreign reserves, which "are still safe."

The government's foreign exchange reserves stood at $32.52 billion as of Aug. 15, according to central bank data. Oil Trouble

Subsidies paid to local oil companies for gasoline, diesel and kerosene may widen the budget deficit to 1 percent of gross domestic product from a targeted 0.8 percent, President Susilo Bambang Yudhoyono said on Aug. 16.

Record crude oil prices, a fall in the rupiah and concern about another bond sale have led to a weakening of Indonesia's dollar-denominated bonds, increasing the government's borrowing costs.

Indonesia sold $1 billion of dollar-denominated bonds in April, its third since 1996. Citigroup Inc., Deutsche Bank AG and UBS AG managed the sale.

The yield on the benchmark 7.25 percent bonds maturing in April 2015 was 7.66 percent as of 11:27 a.m. in Jakarta, according to data provided by Deutsche Bank. The yield has widened from 7.15 percent on Aug. 12. Indonesia priced the bonds on April 13 to yield 7.375 percent.

Pacific Asset's Soon, who bought sovereign bonds in April, said he will only buy the government's new securities if they are offered at an attractive premium to the existing debt.

"Let's see what sort of spreads it comes out at," Soon said.