Govt issues Rp 44.68 trillion in bonds in less than two months

The Finance Ministry’s move to repeat its front-loading strategy — issuing bonds as early as possible in the year — seems to be meeting with success, as shown by the ministry’s latest data.

In less than two months the government has managed to issue Rp 44.68 trillion (US$4.78 billion) of bonds, or 25.54 percent of its Rp 175.06 trillion target for gross bond issuance in 2010, as shown by data up to Feb. 10.

The planned Rp 175.06 trillion of proceeds from bond issuance will be partly used to plug the 2010 budget deficit, estimated at Rp 98.01 trillion.

“The 2010 budget financing plan has gone as expected,” Rahmat Waluyanto, Finance Ministry’s Director General of Debt Management, said last week.

Aside from the weekly government bond issuance, the government issued Rp 8.03 trillion of domestic retail Islamic bonds (sukuk) in February and Rp 18.55 trillion of global bonds in January.

Rahmat said the government also plans to issue Samurai bonds of between $750 million and $1 billion within the first half this year, along with global sukuk, the amount for which has yet to be disclosed, before the fasting month in August.

The Japan Bank for International Cooperation is also backing the sale of Samurai bonds, as part of standby loans of $1.5 billion provided by Japan to help Indonesia to cope with the global financial crisis. Last year Indonesia issued ¥35 billion (about $380.84 million) of Samurai bonds.

In April 2009 Indonesia’s first sale of dollar-denominated sukuk was hugely oversubscribed with total orders of $4.7 billion, seven times more than the $650 million offered by the government.

Indonesia’s upgraded credit ratings by Moody’s Investors Service to Ba2 and by Fitch Ratings to BB+ will likely boost market confidence in the country’s bonds. Standard & Poor’s also changed Indonesia’s outlook to positive.

Rahmat said the government would continue to sell more bonds domestically rather than internationally, as planned in the 2010 budget.

The proportion of domestic holders of government bonds last year was 67.62 percent. This year the government expects to increase Indonesian bond ownership to 75 percent.

As of Feb. 9 foreign investors held 20.03 percent of government bonds. “Foreign investors keep buying bonds, mostly long-term ones,” said Rahmat.

The government said in November last year it would also seek to sell bonds in euros to diversify funding from a weakening US currency. But, last week, Rahmat said that the government would likely postpone the plan following reports of debt problems involving Greece, Spain, Italy and Portugal.

On Friday Indonesia’s benchmark 10-year note due November 2020 yielded 9.85 percent, according to closing prices at the Inter Dealer Market Association, Bloomberg reported.

The yield on Indonesia’s bonds rose five basis points for the week. The price dropped 0.3524, or Rp 3,524 per Rp 1 million face amount, to 107.4665.

Bank Danamon economist Helmi Arman said the yield on long-term government bonds would be lower if the Finance Ministry would issue more bonds globally.

“With Indonesia’s recent credit rating improvements, long-term yields could be lower than they are now if only the Finance Ministry distributes new supply more evenly across the curve,” he said.

Helmi also said the Euro zone debt worries would less likely affect Indonesia. “Fundamentally Indonesia is very much isolated from the Europe debt crisis. However this issue still affects global risk appetite, so the Finance Ministry will have to select the right timing to enter the market,” he said.