Second bond issue continues to draw strong demand

The Jakarta Post, Jakarta

The government struck gold again in its second bond issue for the year when it managed to sell on Tuesday Rp 3 trillion (some US$326 million) worth of local-currency bonds -- nearly twice the amount initially planned -- amid robust investor demand.

The Ministry of Finance announced that the 12-year bond issue -- the longest in term that the government has ever issued -- was 2.08 times oversubscribed and carried a weighted average yield of 10.42 percent.

"The government received Rp 6.24 trillion in total bids, mostly from banks and pension fund managers," the ministry said.

In its first bond issue for the year last month, the government received Rp 12.4 trillion in total bids for 10-year bonds priced to yield at 10.12 percent. It sold Rp 5 trillion worth of the bonds, more than twice the planned amount.

Strong investor demand was also reflected in Tuesday's open auction, as bidders eagerly requested yields for the bonds ranging from 10.20 percent to 12.00 percent. The highest yield granted, however, was 10.50 percent, while the lowest was 10.20 percent.

Interest on the fixed-rate bonds is payable every January and July. They mature on July 15, 2017 and have a coupon rate of 10 percent.

The government plans to issue a total of Rp 43 trillion worth of domestic bonds this year, including sovereign dollar- denominated bonds.

The proceeds of the sales will in part go to help redeem maturing debts and help finance the state budget deficit, which for 2005 is estimated to reach about 1 percent of gross domestic product (GDP).

Last year, the government sold Rp 32.5 trillion worth of bonds including $1 billion in global bonds last March -- all enthusiastically grabbed up by investors.

Many analysts predict that Indonesia will do well with its government bond issues this year, due to the country's improving economy as reflected in the recent upgrading of its debt ratings.

Global rating agency Moody's recently upgraded its outlook for Indonesia's current B2 long-term local currency rating -- which is still five levels below the investment grade -- to "positive" from "stable".

Fitch Ratings also raised Indonesia's long-term foreign and local currency ratings to BB- from B+, and affirmed its short- term rating at B, both with positive outlooks. Standard and Poor's, meanwhile, upgraded Indonesia's long-term foreign currency to B+ from a B and the local currency rating to BB from B+, all with positive outlooks. The ratings remain two-levels below their respective investment grade.