RI Eurobonds illiquid amid financial crisis

RI Eurobonds illiquid amid financial crisis

LONDON (Reuters): Holders of illiquid Indonesian Eurobonds are examining the possibility of a debt moratorium being announced amid the country's financial and credit crisis, bankers said on Thursday.

ANZ Bank research analyst Humaira Sheikh told Reuters the bank was looking at the possibility of a debt moratorium being announced "fairly soon".

"There are a number of people who believe that (President) Soeharto will step down and potentially a moratorium could be announced over the weekend or next week," Sheikh said.

The other possible outcome is that Soeharto announces a more realistic budget and takes economic measures in line with the International Monetary Fund (IMF) agreement.

Indonesia's planned balanced budget for 1998/99 fell short of recommendations from the IMF last year for a budget surplus of one percent of gross domestic product.

Meanwhile Indonesia's long-term foreign currency rating was cut two notches on Thursday by international agency Fitch IBCA.

It said Indonesia's downgrade to BB minus from BB plus reflected uncertainty after this week's budget proposals which had failed to maintain the confidence needed to roll over the high level of external debt.

The first coupon payment of the approximately 50 outstanding Indonesian Eurobonds falls due in mid-February.

"These bonds are very illiquid. It is very difficult to get prices on these bonds," Sheikh said.

The Indonesian government itself only has one outstanding bond issue -- a $300 million floating rate note which matures in 2001 and pays a semi-annual coupon on February 16 and August 16.

Indonesian corporate paper is traditionally held by U.S. high yield accounts and the Indonesian bank paper by emerging market investors, bankers said.

Figures from the Bank for International Settlements (BIS) showed Japanese banks were the largest creditors to Indonesia by the end of June 1997. German banks were the second largest with France and the U.S. in third and fourth place.

Indonesian borrowers include Astra International, Bank Bumi Daya, Bank Dagang Negara, Indorayon and Indah Kiat Pulp & Paper Corp .

Indonesia is seen as having the biggest debt problem with the rupiah down 70 percent against the dollar since July when the regional currency crisis hit.

The rupiah fell to a low of 10,000 to the dollar in late afternoon trade on Thursday, from 8,000 at the open, and the stock market index closed down almost 12 percent.

"It is impossible for corporates to repay dollar debt at these levels," Sheikh said.