[Kabar-indonesia] Bear Stearns Cuts Indonesia Sovereign Debt On Tight Spreads

[JoyoNews at aol.com]

Bear Stearns Cuts Indonesia Sovereign Debt On Tight Spreads

by Matthew Cowley

NEW YORK, Oct. 5 (Dow Jones)--Bear Stearns on Wednesday downgraded its 
recommendation on Indonesia's sovereign debt to marketperform from outperform, 
citing the recent sharp rise in prices and the current tight level of spreads. 

"After widening out during the market malaise in August, Indonesian bonds 
have appreciated sharply in price, while their yields have fallen rapidly," Bear 
Stearns said in a research note. 

The spread on Indonesia's 2016 Global bond is around 188 basis points while 
the spread on the 2035 bond is around 228 basis points, it said. 

"Given these tight spreads and high prices, we see lesser prospects for 
further appreciation in the near term, and, thus, downgrade our rating for 
Indonesia," it said. 

"Nevertheless, we expect Indonesian economic performance to improve 
significantly by year-end as inflation and interest rates come down. This should help 
set the stage for a recovery of investment and bank lending in 2007," Bear 
Stearns said. 

The investment bank highlighted the electric power sector as "one key 
weakness," with the state power company likely to issue new bonds to finance 
investments. 

Repeated brown-outs and blackouts over the last year in the capital, Jakarta, 
and other cities reflect "little spare capacity in the national power grid 
and a steady decline in excess production capacity," it said. 

The state-owned power company, Perusahaan Listrik Negara, or PLN, plans to 
issue up to $1.5 billion of foreign bonds to fund expansion of its power 
production and transmission capacity, the investment bank said. 

Standard & Poor's and Moody's Investors Service both have rated the new issue 
at the level of their respective sovereign ratings, double-B-minus and B1, 
Bear Stearns said. 

"The sovereign, it seems, will not offer a guarantee for these bonds," it 
said. 

While the company has "implicit sovereign support" because the government is 
the sole owner, PLN by itself appears to be financially weak, Bear Stearns 
said. 

"Thus, we would expect the bond to come to market at a premium over the 
sovereign. The attractiveness of the bond will depend on the size of the premium," 
it said. 

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Joyo Indonesia News Service
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