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.