Indonesia to go ahead with bond plan despite 'low' rating

Indonesia to go ahead with bond plan despite 'low' rating

The Jakarta Post, Jakarta

The government will go ahead with plans to issue US$400
million in global bonds next year, even though the country's
sovereign rating has yet to the reach investment grade,
Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
says.

While acknowledging that the country's rating was still five
notches below the investment grade in the latest reports of two
global rating agencies, Dorodjatun said on Thursday that
Indonesia should not put the planned bond issue on hold,
especially as the country was narrowing that gap.

"I do not think we should wait (for the rating to reach such a
grade) for the bond issue. I think, in the next two or three
months, when our economic reform package is in progress, the
spread or gap will keep getting smaller," Dorodjatun said.

He was referring to an economic package as outlined in the
recently released white paper, which contains a set of time-bound
targets for particular economic actions to be undertaken by the
government after the International Monetary Fund (IMF) bailout
program for the country expires.

Indonesia is planning to issue the global bonds next year, the
first since the crisis, as part of its external sources to help
finance the budget deficit, estimated to reach Rp 24.9 trillion,
or some 1.2 percent of the country's gross domestic product.

The plan has had positive repercussions, as two global rating
agencies have upgraded the country's sovereign rating in less
than two weeks.

On Wednesday, the Standard and Poor's (S&P) Ratings Services
raised its long-term foreign and local currency ratings for
Indonesia by one notch to B from B- and to B+ from B,
respectively. The upgrade came around a week after Moody's
Investors Services raised Indonesia's sovereign rating one notch
from B3 to B2.

The assessments reflect the rating agencies' confidence in the
country's fiscal and economic stability, something that analysts
say is important to spur the interest of investors in the planned
bond issue.

Meanwhile, Minister of Finance Boediono was of the opinion
that the country's rating would continue to improve next year,
provided that the reform program was not disrupted by the
elections.

The improved rating would be of great benefit to the country,
Boediono said, as "it would improve our bargaining position,
while it would also make the bonds' coupon cheaper and more
competitive."

Moody's rating definitions:

1. Aaa : Highest quality with minimal credit risk
2. Aa : High quality and subject to very low credit risk
3. A : Upper-medium grade and subject to low credit risk
4. Baa : Medium grade, subject to moderate credit risk and may
possess certain speculative characteristics
5. Ba : Having speculative elements and subject to substantial
credit risk
6. B : Speculative and subject to high credit risk
7. Caa : Poor standing and subject to very high credit risk
8. Ca : Highly speculative and likely, or very near, default
with some prospect of recovery of principal and interest
9. C : extremely speculative and typically in default, with
little prospect for recovery of principal and interest

Note: Moody's appends numerical modifiers 1, 2 and 3 to each
generic rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end
of that generic rating category.

S&P rating definitions:

1. AAA : "extremely strong" capacity to meet financial
commitments
2. AA : "very strong" capacity to meet financial commitments
3. A : "strong" capacity to meet financial commitments but
somewhat more susceptible to the adverse effects of changes than
higher-rated levels
3. BBB : "adequate" capacity to meet financial commitments
4. BB : "less vulnerable" in near term than other lower-rated
levels
5. B : "more vulnerable" than the BB level, but still has the
capacity to meet most financial commitments
6. CCC : "currently vulnerable" and is dependent upon favorable
business, financial and economic conditions to meet financial
commitments
7. CC : "currently highly vulnerable"

Note: Ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major
rating categories