PGN may drop dollar, yen bond plan on weak market
PGN may drop dollar, yen bond plan on weak market
Dow Jones, Jakarta
State-owned PT Perusahaan Gas Negara may drop plans to issue U.S. dollar and Samurai bonds due to the current unfavorable global market situation.
"Due to current weak bond markets, investors may ask for higher yields, which isn't good for the company's financial performance in the longer term," PGN President WMP Simanjuntak told Dow Jones Newswires in an interview over the weekend.
"If the market remains weak over the year, we may drop plans to issue both U.S. dollar and Samurai bonds," he said.
PGN, which controls natural gas distribution in Indonesia, has said it plans to raise up to US$250 million from the international bonds markets later this year to help finance gas pipeline projects in Java and Sumatra.
This would be in addition to the $150 million in offshore bonds PGN issued in September 2003 and the $125 million in bonds it issued in February this year.
Simanjuntak said the recent fall in the rupiah, and fears of political fighting ahead of July's presidential polls, are also likely to deter foreign investors from buying Indonesian bonds.
The rupiah has fallen to 19-month lows against the dollar, and the stock market is down 12 percent from its April 27 high, as foreign capital flows back to the U.S. in anticipation of an imminent interest rate hike there.
The Finance Ministry canceled an auction of treasury bonds last week as bidders demanded high yields - a sign that investors are turning their back on the country.
Other issuers have also been delaying their bond plans. State- owned PT Bank Negara Indonesia, the country's second-largest bank, last week decided to delay its $300 million bond issue to the third quarter of the year from June.
"It's too risky for us to issue dollar bonds under current market situation," PGN's Simanjuntak said. The company is now looking at other alternatives to raise funds, such as through a project-financing scheme with partners.
Several utility concerns from Japan have offered to develop PGN's gas pipeline projects through a build-operate-transfer agreement, he said. Under the scheme, PGN's partners would build and operate the pipelines, paying PGN a portion of the revenues for a contracted period before handing the assets over to Indonesia.
"The good thing is that the project-financing scheme wouldn't increase the company's net gearing," Simanjuntak said.
PGN operates a total of 1,079 kilometers of transmission pipelines as well as 2,547 kilometers of distribution pipelines to link the remote gas sources to the gas market centers across the country.
This year, PGN expects revenue to rise by up to 15 percent due to an increase in the gas distribution and transmission volumes.
In 2003, the company's revenue was Rp 3.596 trillion (US$388 million), compared with Rp 2.780 trillion a year earlier.
The company last year distributed and transmitted a total of 228.9 billion cubic feet of gas, and analysts say it has bright future outlook given its business dominance.
Simanjuntak said the company plans next month to sign gas purchase contracts with ConocoPhillips and Australian oil and gas producer Santos Ltd. to meet gas shortages in West and East Java provinces.
Under the contract, PGN will buy up to 300 million cubic feet per day from Conoco and 100 million cubic feet per day from Santos for 20 years each.
Simanjuntak said he expects the contract to boost the company's revenue over the longer term.