Rp 300t in bonds to be issued in four stages

Rp 300t in bonds to be issued in four stages

JAKARTA (JP): The estimated Rp 300 trillion (US$35 billion)
worth of bonds for financing the country's bank recapitalization
program will be issued in four stages and will carry both
floating and fixed interest rates, a central bank executive said
on Wednesday.

Bank Indonesia (BI) director Miranda Gultom said gradual
issuance of the bonds was necessary to minimize the burden on the
state budget and lessen their impact on monetary stability.

"It's unrealistic to issue the bonds all at once because there
would be a massive payment obligation (of the government) for the
interest," she said.

Miranda said the bonds would also be structured with different
maturities to spread the burden of the payment of their interest
on state budget.

The government has estimated the interest payments for the
total bonds at Rp 34 trillion in the first year, of which Rp 17
trillion will be met by the budget and the remainder by the sales
of the assets of liquidated banks.

Miranda said the first bond issue would be used for the
recapitalization of banks taken over by the government, the
second issue for the recapitalization of the nine private banks
which are eligible to join the recapitalization program, the
third issue for recapitalizing provincial development banks and
the fourth one to recapitalize state banks.

She said the government also was planning to introduce a
secondary market for the bonds to allow recapitalized banks to
raise liquidity by selling the bonds to investors. This will
allow banks to resume their lending activities.

Miranda added the coupon rate of bonds which carry a floating
interest rate would be based on the latest interest rate of the
three-month Bank Indonesia promissory notes (SBI).

In case there is not an auction on the three-month SBI, the
finance minister and the BI governor will use other market
benchmarks to set the coupon rate, she said.

She said the maturity of the floating rate bonds would be set
between three and 10 years, while the maturity for bonds which
carry fixed interest rates would be between five and 10 years.

The interest payments for bonds which carry floating rates
will be made every three months, while interest payments for
fixed rate bonds will be made every six months, she said.

The government has proposed a fixed rate of 10 percent for the
five-year bonds and 12 percent for the 10-year bonds.

Miranda said the government also would issue indexed bonds
carrying a coupon rate of 3 percent above inflation.

The government will not limit investment and ownership of the
bonds, she added.

She said the bond issue would also provide a benchmark for
long-term interest rates in the domestic financial market.

Miranda said BI would support the development of the bond
secondary market by acting as a depository agent, clearing and
settlement agent, paying agent and prudential regulator.

She said the involvement of the central bank in the secondary
market would give BI alternatives other than the SBI as an
instrument for its open-market operations.

The government plans to use the bonds to provide up to 80
percent of funding for the recapitalization of nine private banks
and 100 percent of funding for the recapitalization of provincial
development banks, state banks and banks which were taken over.

The bonds issue is expected to begin in one week.

Almost half of the total bond issue will go to repaying the
government's debt to the central bank, which has provided more
than Rp 140 trillion in emergency liquidity support to bail out
banks hit by massive runs by depositors late in 1997 and the
first half of last year, Miranda added. (rei)