Thu, 03 Aug 2000

More companies issue bonds to raise funds

JAKARTA (JP): More companies are turning to the bond market to raise funds because the banking sector remains hesitant to provide large loans to the industrial sector, analysts said.

Economist Mari Pangestu of the Centre for Strategic and International Studies said she saw a growing trend of companies issuing bonds as an alternative way to raise investment funds.

"It's not exactly a new trend, but more of a growing trend," Mari said during a break in the regional consultative meeting on development financing.

The meeting was hosted by the United Nations Economic and Social Commission for Asia and the Pacific.

She said the methods of raising funds were becoming more limited because traditional financial sources such as the banking sector and the capital market were not working effectively.

Although many recapitalized banks have good liquidity, most of them remain reluctant to channel credits out of fear of again suffering from nonperforming loans, she said.

Mari also said with the low interest rates offered by local banks, debt instruments such as bonds had become more attractive to investors.

"It's far better to have 16 percent (interest) from Sampoerna rather than 11 percent from savings," she said in reference to cigarette producer PT HM Sampoerna, which issued bonds worth Rp 1 trillion (US$112 million) early this year.

At least 13 companies traded their bonds on the Surabaya Stock Exchange (SSX) during the first half of this year, as compared to three companies in the same period last year.

According to the SSX, the country's main bond market, the value of the bonds issued by the 13 companies ranged between Rp 50 billion and Rp 1 trillion.

Raden Pardede, an analyst at securities firm PT Danareksa Sekuritas, however, said that only companies with good financial performances were qualified to issue bonds.

"They (companies) need to be good, otherwise they will receive poor ratings," he said, adding that bonds with low ratings would not attract buyers even if their issuers offered relatively higher yield rates.

Low liquidity

Furthermore, Raden said that despite the active trading of foreign investors, the secondary bond market was still lacking in liquidity.

He said the government needed to improve the regulations for the bond market, including setting a benchmark for companies.

Acting Bank Indonesia governor Anwar Nasution said investors shied away Indonesia's bond market because they lacked confidence in local companies.

"It's useless if you pray diligently but cheat during your work, which is what led us into the economic crisis," he said before the consultative meeting. He added that good corporate governance was important to build confidence in the bond market.

An economist from Hong Kong's Lingnan University, Edward Chen, suggested Asian countries develop their bond markets, saying the absence of such markets had contributed to the region's economic crisis.

"There is a huge potential for bond markets here in Asia," he said during the consultative meeting.

He later told The Jakarta Post that in the aftermath of the economic crisis, the Asian region saw a growing trend of bond trading. "Many countries are talking about it, Hong Kong, Thailand, but unfortunately the pace has been a little bit too slow."

Asked whether this trend would trigger more companies to issue bonds, he said this was unlikely. "It's very slow unless you are a very credible company, otherwise you won't get the trust of the investors."

According to Chen, only a few good companies and semigovernmental sectors could issue bonds as an alternative to share offering. "We don't want every company to issue bonds or we could have junk bonds, as is the case in the United States."

He added that establishing the necessary regulations and facilities to guide the bond market took time, which is one reason bond markets in Asia had not developed some time ago.

Chen suggested that while in its infancy, the bond market should be jointly developed by Asian countries.

"Some new policy measures or the establishment of the right institutions is important for Asia to work as a whole. For example, there should be a central clearing location for the countries to ensure that all Asian bonds are widely traded in the region." (bkm)