Govt to trade Rp 19t in treasury bonds

JAKARTA (JP): Bank Indonesia deputy governor Miranda Goeltom said on Monday that some Rp 19.7 trillion (US$2.60 billion) in government bonds would be tradable at the Surabaya Stock Exchange starting on Tuesday.

Speaking to reporters on the sidelines of a seminar, Miranda said that Rp 17.8 trillion of the amount would be released by the giant state-owned Bank Mandiri, while the remainder would come from other banks.

The government has so far issued Rp 282 trillion worth of bonds to finance the recapitalization of the country's ailing banks.

Bank Indonesia said in the first stage, the amount of the treasury bonds to be tradable in the secondary market would be limited to 10 percent, or about Rp 28 trillion, due to the relatively low market capacity to absorb the bonds.

But Miranda did not explain why only Rp 19 trillion would be released in the first stage today.

She only said: "Investor preferences and a desire to create liquid trading will be taken into account in determining which issues can enter the market."

Bond experts said earlier that the domestic market capacity to absorb the bonds was very limited as banks which were the traditional bond investors are still bleeding, and only a handful of companies have a strong cash flow.

Analysts also pointed out to other competing investment opportunities to be provided by several initial public offerings (IPO) in the stock exchange this year.

Experts said if the supply was bigger than the demand, the bonds would have a poor market liquidity. They said the market capacity to absorb the bonds was in the "tens of trillion rupiah".

Inviting foreign investors into the bonds will not be easy because of the current social and political instability, analysts said.

But Miranda said the bonds should be an attractive investment opportunity on grounds that the rupiah was expected to strengthen from current levels, the central bank benchmark interest rate would decline but remain high by international standards and long-term interest rates should fall.

The government is expected to issue a total of Rp 392 trillion worth of bonds to recapitalize domestic banks.

The government injected the bonds into the banks to boost their capital adequacy ratio (CAR) level to the minimum 4 percent requirement. But the recapitalized banks could not freely sell the bonds to raise badly needed fresh cash.

The central bank has been under pressure to quickly allow banks to sell the bonds into the secondary market to help banks raise cash to provide lending to the anemic real sector.

Miranda said only bonds carrying fixed and variable interest rates could be tradable.

The fixed rate bonds included a five-year bond maturing in September 2004 with a 12 percent coupon, payable semi-annually. The government has issued Rp 22.41 trillion worth of this type of bond.

The other type is a 10-year bond maturing in June 2009, carrying a coupon rate of 14 percent. Some Rp 28.88 trillion has been issued.

The government has also created 16 series of variable rate bonds worth Rp 203.9 trillion with a maturity ranging from July 2002 to July 2009. The interest rates of the bonds are payable quarterly. The interest rate is set quarterly in advance based on the interest rate of the central bank three-month promissory notes. (rei/rid)