Govt upbeat over next bond issue
The Jakarta Post, Jakarta
The government is optimistic about the prospects for the bonds it is due to issue next week, saying the market has enough liquidity to absorb the bonds, the Ministry of Finance official in charge of bond issues said on Wednesday.
Fuad Rahmany, head of the ministry's center for treasury bond management (PMON), said that the government's move in late August to buy back its maturing bonds should help strengthen the bond market's liquidity.
"I think the liquidity is strong enough as the government has just 'injected' Rp 4.9 trillion into the market through its buyback policy," Fuad said.
He was referring to the policy whereby the government repurchases its domestic debts, which are all in the form of government bonds, once they mature. This is designed to reduce the government's interest payment.
The recent buyback was the second this year, after the first buyback in early August, during which the government repurchased a total of Rp 3.25 trillion worth of bonds.
The government has allocated Rp 9.4 trillion to finance the buyback program this year.
The state budget has been greatly burdened by the payment of interest on bonds worth about Rp 450 trillion that were issued in the late 1990s to bail out the country's troubled banks.
To ease the interest burden, the government launched the debt buyback strategy, as well as a scheme allowing it to issue new bonds to refinance the maturing ones.
In line with the second strategy, the government is set to issue Rp 5 trillion worth of bonds on Sept. 9, making this the second bond issue this year following the issuance of Rp 2.7 trillion worth of bonds in April.
Fuad reiterated his view that next week's bond issue would be a great success, saying that investors would find the bonds more attractive to invest in compared to other investment instruments, including Bank Indonesia one-month promissory notes (SBIs), due to the higher yields.
While having yet to determine the coupon on the bonds, Fuad said it would be higher than the current benchmark SBI rate, which stands at 8.83 percent.
Asked about when the remaining Rp 4 trillion worth of bonds would be issued, Fuad said the government would discuss the matter first with the House of Representatives.
Initially, the government planned to issue Rp 7.7 trillion worth of bonds this year, but it is currently seeking approval from the legislators to increase the amount of bonds to Rp 11.7 trillion due to the larger-than-expected deficit.
A statement from the ministry said a day earlier that the auction would be held by Bank Indonesia between 10:00 a.m. and 12:00 a.m.
The bond will mature in Dec. 15, 2012, and will carry a fixed coupon payable twice a year.