Govt upbeat over next bond issue

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.