Indonesia launches US$1b global int'l bond

Fitri Wulandari and Dadan Wijaksana, The Jakarta Post, Jakarta

The government launched a US$1 billion international bond, more than double the initial plan of $400 million, following overwhelming demand from global investors.

The 10-year bond was launched with a yield of 6.85 percent,Dow Jones reported from New York late on Wednesday Jakarta time where a government team had been conducting a final roadshow for the offering. The yield was lower than the 7 percent target set earlier by the government.

Government officials could not be reached for confirmation, although the increase in the size of the offer had been expected as Minister of Finance Boediono had hinted earlier in the day.

"There is a possibility it will be more than $400 million, as we see room for it," Boediono told reporters before the announcement late on Wednesday, Jakarta time.

Demand for the bonds has topped $4 billion, more than 10 times larger than the $400 million initially planned.

The upcoming issue, jointly managed by JP Morgan and Deutsche Bank, will be the first since the 1997-1998 financial crisis after the government issued its maiden sovereign bond issue in 1996 worth $400 million, due to mature in 2006.

In the 2004 state budget, the government plans to issue a total of Rp 32.5 trillion in bonds throughout the year -- both international and domestic -- to help plug the deficit.

The issue is seen as timely because Indonesia's profile among investors has been improved thanks to improved macroeconomic performance, as evidenced by a relatively stable rupiah, benign inflation, declining central bank interest rate and continued fiscal consolidation.

The country's economy is forecast to grow 4.8 percent this year, from 4.1 percent in 2003. The economy contracted by 13.1 percent in 1998. Annualized inflation last month fell to a four- year low of 4.6 percent, compared to a high of 77.6 percent in 1998 following the financial crisis.

State budget deficit is forecast to narrow to 1.2 percent of gross domestic product this year, down from 1.9 percent last year.

All of which helps boost the country's markets among various international ratings services and subsequently helps suppress the yield. The rupiah's long-term rating is a B according to Standard & Poor's, a B2 by Moody's Investors Service and B+ from Fitch.

The government is pushing to seek sources of funds to fill the deficit gap this year, as the government has ended its special lending program with the International Monetary Fund (IMF).

Exiting the program means the country is ineligible for further debt rescheduling from the Paris Club of creditor nations and the London Club of private creditors, so the government has to fully repay maturing sovereign debts, which will put heavy pressure on the budget.

Additional pressure will also come from maturing government domestic debts, which for this year were estimated at Rp 24.7 trillion.

Earlier, Bank Indonesia governor Burhanuddin Abdullah said demands from investors had skyrocketed to $4.2 billion, in what he claimed as a vote of confidence from the international community on Indonesia's economy.

"Demands received from Asia, Europe and the U.S. have reached $4.1 billion. This is a warm welcome to our economy," he said.

The demands were booked during a week-long roadshow ending on Wednesday by a government team to a number of the world's major financial centers, including Hong Kong, Luxembourg, Frankfurt, Boston and Los Angeles.