[Kabar-indonesia] Bloomberg: Indonesia Turns to Bond Sales [+Reuters: Emerging Debt]

Tue Aug 1 17:58:21 MDT 2006

also: Emerging Debt - Asian bonds dip on profit taking before U.S. data

Bloomberg News
August 1, 2006

Around Asia's Markets: Indonesia Turns to Bond Sales  

SINGAPORE -- Munandar Arif is selling half his stock holdings and all his 
investments in bank deposits to buy bonds in Indonesia's first debt sale targeted 
at individuals.

"Interest rates are falling and I'd get less and less when I put my money in 
bank deposits," said Arif, a project manager for a company that designs 
Internet banking services in Jakarta. "Stocks are a gamble, while these bonds give 
me peace of mind I'll get a guaranteed high return for at least three years."

The government is turning to its wealthier citizens to help fund a budget 
deficit that will almost triple this year, a role previously undertaken by 
institutions like banks, pension funds and foreign investors. Indonesia needs the 
funds to cover a deficit that is swelling as fuel and power subsidies rise due 
to higher oil costs and as the nation spends trillions of rupiah to rebuild 
after natural disasters in Java.

The nation will sell 2 trillion rupiah, or $220 million, of bonds to retail 
investors through Aug. 4 in its first sale of the securities to individuals. 
Investors have to buy a minimum of 5 million rupiah of the bonds, which mature 
in three years.

Arif said he planned to spend as much as 300 million rupiah, about 26 times 
the average annual income of his compatriots, in the sale. He will reduce the 
shares he owns in Indonesia's two biggest telephone companies to finance his 
purchase.

"With the economy slowing, I'm not as confident on stock market gains," he 
said. "Bonds are a better bet. There is a lot of interest in the sale and I hope 
I get the amount I'm bidding for."

Overseas investors currently own 100 trillion of rupiah- and 
dollar-denominated government bonds, more than 11 times the amount they held three years ago, 
said Rahmat Waluyanto, a director of a debt management unit at the Finance 
Ministry.

"The need for the government to sell Treasury bonds from year to year 
continues to increase to finance the deficit," Waluyanto said. "The government wants 
to diversify the investor base and the source of financing. Otherwise, 
foreign-investor ownership will continue to rise."

The economy may also benefit as interest payments from the bonds are plowed 
back into the domestic market. Indonesia's economy grew 4.6 percent in the 
first quarter from a year earlier, the slowest pace since 2004, the Central 
Statistics Bureau said in May.

The Finance Ministry appointed 11 banks and securities firms to sell the 
bonds, including Bank Mandiri, the country's largest lender, Bank Danamon, the 
fifth biggest, and the Indonesian unit of Citigroup. They will take offers until 
Friday, and investors will be told the results three days later.

The three-week period to sell the bonds is too short, some of the firms said. 
That may prevent the government from achieving its target of selling 2 
trillion rupiah of debt.

"This bond is a new thing for many potential investors and we have to explain 
details such as the coupon or the yield to them," said Andy Purwohardono, 
head of sales and president director at Danareksa Sekuritas. "It would take at 
least three weeks to sell regular bonds to institutional investors, while 
selling bonds to retail investors will certainly take more than three weeks."

Expectations that the central bank will cut interest rates are spurring 
demand for the bonds, sales managers said.

Bank Indonesia has reduced rates twice since May to 12.25 percent from 12.75 
percent. Policy makers, including Governor Burhanuddin Abdullah, have said 
that rates can be reduced in a "more aggressive manner" as inflation pressures 
recede. The rate may be cut to about 10 percent should the inflation rate fall 
below the central bank's target of about 8 percent at the end of the year, 
Abdullah said.

"Interest in the sale is high as bank deposits become less attractive in an 
environment where rates are falling," said Habsari Utami, head of Treasury 
sales at Bank Danamon in Jakarta. "Investors want some diversification in their 
portfolios and these securities give them a chance to do so directly instead of 
holding bonds via mutual funds."

---------------------------------------

Emerging Debt - Asian bonds dip on profit taking before U.S. data

HONG KONG, Aug 1 (Reuters) - Asian dollar bonds weakened on
Tuesday as some investors pocketed gains ahead of U.S. July
jobs data later this week, which may give clues to the Federal
Reserve's next step on interest rates.

"There is a bit of profit-taking, but the market is not doing much," 
a Singapore-based dealer said.

Bids on Philippine 2031 bonds eased 0.375 point to 106.25, while 
the country's five-year credit default swaps -- insurance-like contracts 
that offer protection against debt default or restructuring -- were bid at
187 basis points (bps), about two bps wider.

Indonesia's sovereign dollar bond due in 2016 was bid at 104, 
compared with 103.75 in late Asian trade on Monday. Indonesia's 
2035 bonds werestable at 113/113.5. Five-year Indonesian credit 
protection  widened by 2 bps to a bid of 177 bps.

Benchmark 2014 bonds from conglomerate Hutchison Whampoa Ltd. 
were quoted at 106/101 bps over Treasuries, compared with 104/100 
bps over in late Asian trade on Monday.

But United Overseas Bank's 2013 bonds were about 2 to 3 bps tighter, 
bid at 90 bps over Treasuries. The Singapore lender publishes second-quarter 
results on Tuesday.

South Korean oil refiner GS Caltex Corp. is expected to
price a $200 million, 10-year bond soon, subject to market
conditions, a market source said on Tuesday. 

South Korea's second-biggest refiner had set an indicative
yield range of 115 to 117 bps above 10-year U.S. Treasuries.

By comparsion, GS Caltex's existing 2015 bonds were bid at 
110 bps over Treasuries on Tuesday.

Four other borrowers from Indonesia, South Korea and India
are marketing dollar-denominated bonds worth over $800 million
in total to take advantage of better market conditions after a
month-long lull in new issues due to emerging market
volatility.

                      FIVE-YEAR CREDIT DEFAULT SWAPS

                                         Bid/Ask spread

                                     Current          Week ago

 Korea Dev Bank             22/24           23/26
 Hutchison                     ~/35           33/36
 PCCW-HKT                  ~/64           58/73
 China                          ~/22           21/24
 Indonesia                    173/180           ~/210
 Korea                         22/24           23/26
 Malaysia                     25/27           28/29.5
 Philippines                 181/190           ~/218
 ~ no bid or ask spread
 For CDS prices double click on <GFICDS>

               ASIAN BENCHMARK DOLLAR BONDS

                 Coupon     Maturity   Bid price   Bid    spread

 China                   6.8       23 May 11      105.15          56
 Kowloon Canton     8         15 Mar 10      107.89          57
 MTR                     7.5       08 Nov 10      107.09          62
 Hutchison               7         16 Feb 11      104.58         85
 PCCW-HKT           7.75      15 Nov 11      108.25       116
 Korea Dev Bank     5.5       13 Nov 12       98.51          79
 Malaysia                7.5       15 Jul 11      107.80          68
 Tenaga Nasional    7.63       1 Apr 11      107.19          85
 Petronas                 7         22 May 12      106.04        77
 Philippines            9.38      18 Jan 17      115.00          231
 Philippines            9.875     16 Mar 10      109.81         179
 DBS Group Holdings 7.125     15 May 11      105.59      78
 Singapore Tele        6.375      1 Dec 11      103.20         68

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Joyo Indonesia News Service
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