Investment bankers see strong demand for RI global bonds

Dadan Wijaksana, The Jakarta Post, Jakarta

Investment bankers said that the government's planned sovereign bond issue this year should be met by strong demand from investors amid favorable international and domestic economic conditions.

The bankers, whose banks are in competition to be named the underwriter for the bond issue, expected that the bonds would be oversubscribed.

"They view the timing as being good as we are putting in a good macroeconomic, fiscal and monetary performance at the moment, supported by an improving world economy. They expect the bonds to be fully taken up by the market," Bank Indonesia senior deputy governor Anwar Nasution said on Friday.

Anwar is a member of the government team assigned to select the underwriters.

The government commenced a two-day contest on Thursday to select the underwriter to manage the bond issue. Citicorp, Deutsche Securities, J.P. Morgan, Morgan Stanley and UBS are on the list and have been invited to present proposals.

The government is expected to announce the winner on Tuesday.

This will be the country's first international bond issue since the late 1990s financial crisis. The government late last year said that it planned to issue around US$400 million worth of sovereign bonds this year to help finance the 2004 state budget at a time when Indonesia is no longer eligible to obtain debt rescheduling facilities from the Paris Club after the country graduated from the International Monetary Fund's bailout program late last year.

But bankers participating in the selection contest suggested that the government increase the size of the issue, and that the issuance should be carried out in the first quarter of this year before the start of the country's general election in April.

Some officials said that the government might only consider increasing the bond issue up to $500 million. During non-binding overseas roadshows last year, some institutional investors suggested that the bond issue should be increased to $1 billion.

The bankers also suggested that the government select two or three underwriters to manage the sovereign bond issue to help ensure active trading of the bonds on the secondary market.

Anwar said that the investment banks had also suggested the government set the tenor of the bond in a range of 7 to 10 years with a yield of between 6 percent and 7 percent.

International rating agencies -- Fitch Ratings, Moody's and Standard and Poor's (S&P) Ratings Services -- last year upgraded the country's sovereign ratings. Although still below investment grade, the move was seen as a vote of confidence in the economy, which for the past year has seen a declining trend in domestic interest rates, strengthening of the rupiah, easing inflation, and higher foreign exchange reserves.

Aside from the sovereign bonds, the government is also planning to issue around Rp 28.5 trillion (US$3.4 billion) worth of bonds on the domestic market this year.