Govt to undertake second bond issue next week

The Jakarta Post, Jakarta

The government is set to issue Rp 5 trillion (around US$625 million) in bonds on Sept. 9 as part of its efforts to help cover the deficit in the 2003 state budget.

The bond, which is the second tranche this year, will mature on Dec. 15, 2012 and will carry a fixed coupon to be paid twice a year, the Ministry of Finance said in a statement on Tuesday, adding that the coupon rate had yet to be determined.

The bond issuance is part of government plans to issue new bonds to finance maturing government bonds.

In April, the government issued the first tranche, worth Rp 2.7 trillion, which will mature in 2011. The bonds have a fixed coupon rate of 12 percent and was priced through an auction with a weighted average yield of 12.21 percent.

The government has said the bond issuance was a highly important measure to help ease the payments of its huge domestic debts, as well as to avoid a fiscal disaster and maintain investor confidence.

As of December last year, the government's domestic debt stood at Rp 650.4 trillion -- all in the form of bonds, with a large chunk of them maturing between 2004 and 2009. The huge debt is a result of the cost to bail out the banking industry during the late 1990s financial crisis.

Late last year, the government issued treasury bills also in a bid to finance maturing government bonds. The issuance was considered successful given the fact that the bills were oversubscribed.

Previously, the government targeted to issue bonds worth Rp 7.7 trillion this year, but it is currently seeking approval from the House of Representatives for its plan to increase the size of the bond issuance to Rp 11.7 trillion due to a larger-than- expected deficit.

Minister of Finance Boediono said last week the 2003 state budget deficit was expected to widen to 2 percent of the gross domestic product (GDP), due to rising expenditures and falling revenues.

He said the deficit would hover around Rp 35.1 trillion, instead of the original target of Rp 34.4 trillion or 1.8 percent of GDP.

Elsewhere, the statement said that the auction of the new bonds will be held by Bank Indonesia from 10.00 a.m. 12.00 a.m. on Sept. 9.

The government is also expected to sell around $400 million in sovereign bonds in the international market early next year, to help finance next year's state budget.