PGN postpones bonds issue plans on unfavorable market condition

Leony Aurora, The Jakarta Post, Jakarta

State gas distribution company PT Perusahaan Gas Negara (PGN) has postponed plans to issue Rp 1.5 trillion (US$159.57 million) in bonds because of unfavorable market conditions.

The publicly listed company does not know when it will issue the bonds, president director WMP Simanjuntak said on Thursday. PGN had planned the bond issue for the first quarter of this year to finance a pipeline project linking South Sumatra and West Java.

"The (benchmark interest rates of the) U.S. Federal reserve has been raised," Simanjuntak said. "Other listed companies have also postponed (bond issues)."

"We will see (if the situation gets better) in the next one or two months."

The Fed has raised its benchmark rate steadily over the past year to 2.75 percent. Indonesia's central bank also announced that it would raise its benchmark rate, currently at about 7.4 percent, to stem inflation, which is expected to shoot up after fuel prices were increased a month ago.

Higher benchmark rates mean a higher cost of borrowing. Correspondingly, companies must offer higher yields on new bonds to attract investors.

Last week, the government delayed a global bond sale amounting to at least US$1 billion for similar reasons.

Simanjuntak said the delay would not affect the progress of the pipeline project. "We have enough internal funds to cover the two projects," said Simanjuntak, including the construction of a pipeline network in West Java.

The 180-kilometer pipeline from gas-rich South Sumatra to densely populated West Java and Banten is expected to cost $188 million, of which $80 million has been secured from the World Bank.

PGN raised $150 million through initial public offerings and $275 million through bond issues last year.

"Construction will start in September or October this year, because (the pipeline) will have to be completed by October 2006," said Simanjuntak.

With the project advancing, PGN signed on Thursday memorandums of understanding with 82 companies in the western part of Java, allocating 117 million standard cubic feet per day (mmscfd) of natural gas from South Sumatra for the companies.

Together with another 95 businesses that signed similar understandings in November last year, PGN has committed 450 mmscfd, or 70 percent of the 650 mmscfd expected to travel through the pipeline when it is operational.

PGN has signed deals with ConocoPhillips and Pertamina to provide 400 mmscfd and 250 mmscfd, respectively, starting in 2007 for between 17 and 20 years, with a total value of up to $7 billion.

Meanwhile, PGN announced on Thursday a Rp 474.3 billion net profit last year, almost 7 percent lower than the Rp 509.5 billion it booked the previous year, on foreign exchange losses.

Revenue was up 23.9 percent to Rp 4.4 trillion last year, but a weaker rupiah caused interest expenses to rise to Rp 224.9 billion from Rp 152 billion in 2003.