Govt's second bonds issue fails to reach target
Govt's second bonds issue fails to reach target
The Jakarta Post, Jakarta
The government's second bonds issue on Tuesday turned out to be
somewhat a failure, as demand from investors was insufficient,
forcing the government to cut the size of the issue.
While the initial target had been set at Rp 5 trillion (about
US$650 million), Tuesday's auction saw the government only manage
to issue Rp 3.9 trillion worth of bonds.
Fuad Rahmany, head of the Ministry of Finance's state bond
division, told reporters that the bonds' longer-term maturity
profile may be the reason for the lack of demand.
"Investors may no longer be interested in long-term bonds," he
told a press conference.
The bonds, which carry a weighted average yield of 11.6
percent, are due to mature in December 2012. The bonds have an 11
percent coupon payable twice a year.
The government had hoped to issue up to Rp 5 trillion worth of
bonds to help cover the 2003 budget deficit by retiring some
higher-yielding bonds issued during the crisis.
But, the result of Tuesday's auction paled by comparison,
especially if compared to the previous bonds issue.
In April, the government's first bond issue, worth Rp 2.7
trillion, was a success with the bonds 2.8 times oversubscribed.
To mature in 2011, these bonds carry a 12 percent fixed-rate
coupon and were priced through an auction with a weighted average
yield of 12.21 percent.
A similar success story was also recorded late last year, when
a Rp 2 trillion bonds issue was also oversubscribed.
All these have raised optimism that the government's new bonds
issue would be oversubscribed again particularly as foreign
investors have been looking for local assets with higher yields
amid the global weakening of dollar assets.
Darmin Nasution, the director general of financial
institutions at the finance ministry, said the government was
studying the mediocre results of the new bonds issue.
"We are now studying why the demand had been insufficient. It
could be because the tenor is too long," said Darmin.
The government has said the bond scheme is critical in helping
to avoid a fiscal disaster in the future and maintain investor
confidence.
The state budget has been heavily burdened by the payment of
maturing bonds totaling about Rp 450 trillion that were issued in
the late 1990s to bail out troubled banks.
To ease the interest burden, the government launched the bond
scheme, meaning it will issue new bonds to refinance the maturing
ones.
Despite the lower-than-expected results, Fuad claimed the
amount was enough to cover the current financial needs, and that
the government still had time to better prepare its next bond
issue planned for this year.
Previously, this year's bond issue had been earmarked at Rp
7.7 trillion, but the government is currently seeking approval
from legislators to increase the size to Rp 11.7 trillion due to
the higher than expected budget deficit.
The latest auction pushes the state bonds issue this year to
Rp 6.6 trillion so far, meaning the government would have to
issue another Rp 5.1 trillion in bonds in the next three months
or so.
The weak result could also affect the government's plan to
issue around $400 million worth of international bonds early next
year, to help seek financing for the state budget as the country
will no longer obtain financial assistance from the International
Monetary Fund when the existing program expires at the end of
this year.
Results of new bonds auction (No. FR0023)
Total bids (Rp) 4,700.5 billion
Total bonds sold (Rp) 3,995.5 billion
Weighted average yield (%) 11.60
Date of issuance Sept. 11, 2003
Date of maturity Dec. 15, 2012
Date of yearly interest payments June 15, Dec.15
Source: The Ministry of Finance