[Kabar-indonesia] RI to raise size of `hit' retail bond issue

[Joyo at aol.com]

The Jakarta Post 
Saturday, August 5, 2006

Govt to raise size of `hit' retail bond issue

Urip Hudiono, The Jakarta Post, Jakarta

The government said Friday orders for the country's first-ever treasury bonds 
for individual investors had exceeded the size of the original issue, and 
hinted that it might expand the issue to meet demand.

"If all of the orders are indeed confirmed, then we will take up all of them 
to meet market demand," said the Finance Ministry's director general for the 
treasury, Mulia P. Nasution.

As of the final offering period Friday, bookings for the bonds neared Rp 3 
trillion (US$329 million), said the ministry's director for bond management, 
Rahmat Waluyanto.

The government initially planned to sell Rp 2 trillion of the bonds, which 
have been offered to the public since July 17 through 11 appointed banks and 
securities firms. The allotment of the bond sale itself will be fixed Monday, 
with its settlement Wednesday.

The three-year, rupiah-denominated bonds carry a fixed coupon rate of 12.05 
percent, which is higher than most bank deposit rates. Investors were required 
to order a minimum Rp 5 million of the Rp 1 million-unit bonds.

There was initially some questions about how well the bonds would sell. Many 
investment managers said the three-week book-building was too short to 
introduce the new type of bonds to their customer target of individual investors.

In response, the government delayed the bonds' auction from July 27 to give 
selling agents additional time to offer the bonds. It also relaxed the Rp 50 
million maximum order per investor, announced a fixed 20 percent tax on the 
bonds' interest and guaranteed the secrecy of investors' identities -- all to 
attract more buyers.

Speculation that the central bank may cut its key interest rate again may 
have helped boost demand for the bonds as well. A lower key rate could push down 
bank deposit rates, making the retail bonds' fixed rate more attractive, and 
possibly helping to increase their prices if traded on the secondary market. 
Bond prices move inversely to their yields.

Mulia said the government was likely to raise the size of the issue to help 
develop the country's bond market.

Individual investors who missed out on this year's retail bond issuance 
should have another chance next year, with Rahmat saying the government planned to 
hold regular retail bond auctions -- as it does for its issuance of bonds for 
institutional investors -- starting in 2007.

Rahmat said the retail bonds would be issued every three or four months, with 
each issue worth Rp 2 trillion. He earlier said the government also was 
preparing to issue the country's first-ever shariah-based "sukuk" bonds next year.

Since 2003, the government has been selling rupiah-denominated bonds to 
institutional investors, issuing between Rp 3 trillion and Rp 5 trillion each 
month. And since 1999 it has been issuing up to $2 billion in dollar-denominated 
global bonds at least once a year. The government will hold its next monthly 
bond auction Aug. 22.

The government expects to raise Rp 35.8 trillion in net bond sale proceeds 
this year. The proceeds will help finance the state budget deficit, which this 
year is expected at Rp 37.6 trillion, or 1.2 percent of gross domestic product. 

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Joyo Indonesia News Service
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