'Investors will vie to buy state bond'

'Investors will vie to buy state bond'

The Jakarta Post, Jakarta

Investors will vie to buy the around Rp 2.7 trillion (US$845
million) worth of new bonds the government plans to issue on
April 8, an economist predicted Wednesday.

"I think the market will react positively over this (bonds
issuance), as investors have been keen to look for state bonds
from time to time," StanChart economist Fauzi Ichsan told The
Jakarta Post.

State bonds, he added, had become the center of investors'
attention as they were deemed more profitable to invest in
compared to other alternatives.

"Aside from the fact that state bonds carry zero risk (of
defaulting), investors are basically running out of other
options, amid the overall unfavorable investment climate here."

While the country's equity market was losing its attraction
given the prevailing bearish sentiments there, investors were
also reluctant to invest in the real sector given the high risk
of suffering losses, he added.

Investing in bank deposits is not so attractive either amid
declining interest rates as Bank Indonesia has been steadily
lowering its benchmark interest rate since early last year.

The interest rate on the one-month Bank Indonesia's benchmark
promissory notes is now hovering at around 11.4 percent.

In comparison, state bonds are now offering coupon rates of
between 15 percent to 17 percent, while bank deposit rates move
at a range of 12 to 13 percent.

Against the backdrop, Fauzi said he was optimistic that the
launching of the new bonds would be successful.

Separately, Finance Minister Boediono also voiced optimism
about the market's reception of the new bonds, saying more and
more investors, both institutions and individuals, were holding
state bonds.

Citing government data, Beodiono said, as of February, as many
as Rp 59.6 trillion worth of state bonds had been traded and held
by investors, mostly by non-recap banks, pension funds, insurance
firms etc.

The Rp 2.7 trillion in new bonds, which mature in eight to 10
years, will be the first to be issued this year, from the total
of Rp 7.7 trillion, in order to refinance bonds -- both recap
bonds and the ones it owes to the central bank -- to be matured
during the year.

Despite claims that the refinancing scheme would only shift
the problems and fail to solve it, the government had chosen to
take such action as part of its strategy to manage its huge
public debt.

Without refinancing, the government will risk sending the
country into a fiscal disaster, in the event of defaulting.

As of December last year, the country's domestic debts stood
at Rp 650.4 trillion -- all in the form of bonds, with a large
chunk of them maturing between 2004 and 2009.

Of the total domestic debts, local banks received most of them
with some Rp 430 trillion worth of recap bonds, while Bank
Indonesia obtained another Rp 144 trillion in bonds to replace an
equal amount it had spent under the liquidity supports loans
(BLBI).