Rupiah to strengthen on BCA sale
Dadan Wijaksana, The Jakarta Post, Jakarta
The rupiah is expected to strengthen slightly this week based on the positive feelings resulting from the completion of the Bank Central Asia (BCA) sale, according to analysts.
They said, however, that U.S. dollar demand from local companies to repay overseas debt would limit the appreciation in the value of the rupiah.
The local currency closed last week at Rp 9,978 against the U.S. dollar, strengthening from Rp 10,165 the week before.
"The closing of the BCA sale process should serve as positive sentiment to the market, with the rupiah expected to strengthen slightly," said Vickers Vallas currency analyst Wiwan Wiradjaja this weekend.
The government announced on Thursday that a consortium led by U.S. investment firm Farallon Capital won the government's 51 percent stake in BCA, outbidding the U.K.'s Standard Chartered Bank Plc.
Farallon will pay Rp 5.4 trillion for the shares, or Rp 1,775 per share.
The sale of BCA is seen by international lenders and investors as a litmus test for a government that is committed to carrying out economic reform programs.
The asset divestment program had been delayed for two years due to various reasons including political intervention and anti- foreign sentiment.
Experts also said that the entry of a high-profile investor into the country's banking sector would entice other foreign investors into various other assets planned for sale by the government this year.
These investors would bring hard currency into the country which boding well for the rupiah.
"The BCA case should serve as a good example for other planned asset sales programs, including Bank Niaga, Bank Danamon, and so on," said another currency analyst.
The government is planning to sell its shares in other banks which are currently controlled by the Indonesian Bank Restructuring Agency (IBRA).
The government is also planning to sell state-owned enterprises as part of the country's privatization program.
"If everything is okay with BCA, we should not have problems in selling other banks to foreigners," he said.
However, with local companies needing U.S. dollars for their debt payments, the upward movement in rupiah would only occur in a narrow range.
Indonesian companies owe more than $60 billion in foreign debts. The huge debt overhang has been a factor causing the rupiah to remain under pressure for the past years.
Aside from paying their maturing debts, some firms also need the dollar to finance their imports.
Wiwan expected the rupiah to trade within a tight range next week, adding that the local currency would likely test the level of Rp 9,900 against the dollar, as local companies were still keen on buying the U.S. currency on dips to pay maturing offshore debts.
Meanwhile, in the stock market, the BCA sale proved to have a negative impact, dragging the Jakarta Stock Exchange Composite Index down because the government managed to sell only the Jakarta-listed bank at Rp 1,775 per share, which was lower than the market share price at the time.
Selling in the bank shares last week pushed the index lower to close at 467.99 points, or lower than 475.11 in the previous week.
As for BCA shares, they ended down 3.8 percent last week, at Rp 1,900 on volume of 50.7 million shares.
"The massive selling of BCA shares occurs because the market had hoped any bidder for the stake would offer a premium to the current price," a dealer said.
The dealer expected the market to be flat to slightly lower this week based on further selling in BCA shares.