Rp 2.5t in bonds up for grabs next week

Urip Hudiono, The Jakarta Post, Jakarta

In a bid to tap into the domestic bond market and partially finance the state budget, the government is planning to offer up to Rp 2.5 trillion (US$263.7 million) worth of bonds to investors next week, a finance ministry official said.

The Ministry of Finance's Director General of State Treasury Mulia Nasution announced publicly on Tuesday that two types of bonds would be offered at an auction on May 17.

The first type, Mulia explained, would be a reopening of a two-year, rupiah-denominated bonds that the government had previously offered last month, carrying a fixed coupon rate of 9.5 percent per annum and maturing on April 15, 2007.

In its previous bond offering on April 26, the government managed to sell up to Rp 3 trillion worth of the bonds. They carry the shortest term of maturity offered by the government.

Another type of bond up on offer will be a new 11-year, rupiah-denominated bond maturing on May 15, 2016. Its yield will be announced later.

"The Rp 2.5 trillion is the target for the total sales of the two types of bonds," Mulia said. "We will make both available during a single auction, in which investors can choose the one they are interested in."

Mulia further explained that the bond sale remained consistent with the government's state financial plan, with the proceeds used to pay off several maturing bonds.

"We are expecting the sale to turn out well, as there will be a large amount of bonds coming due next week," he said.

The government has, in recent years, been very active in offering both rupiah- and dollar-denominated bonds, whose proceeds are used to help keep the state budget deficit down.

Under the 2005 state budget, the deficit is expected to reach Rp 19.5 trillion, or about 0.8 percent of the country's gross domestic product (GDP).

Some Rp 43 trillion worth of bonds has been earmarked to be sold this year. Next week's auction would be the fourth local currency issuance this year, after three previous sales that generated a total of Rp 11 trillion, in addition to a US$1 billion sovereign bond issue in April.

An improving credit rating has also helped the government's bond sales, with global rating agency Moody's putting Indonesia's long-term local currency debt rating at B2 -- or five levels below investment grade -- while Standard & Poor's rates the rupiah debt BB -- two levels below investment grade. Those two credit agencies have given the country's ratings a positive outlook.

A volatile bond market in March with investors expecting higher yields had, however, forced the government to postpone its local currency and global bond offerings during that month.