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Tuesday, January 26, 2010

Improving Indonesian bond ratings are predicted to encourage the issuance of government and corporate bonds

By Irvin Avriano A.

JAKARTA: Improving Indonesian bond ratings are predicted to encourage the issuance of government and corporate bonds because the rating action reducing cost of either rupiah or dollar denominated bond issuance.

The long-term ratings of rupiah-denominated and foreign Indonesian bonds upgraded by Fitch Ratings from BB to BB+ level with a stable outlook.

At the same time, Fitch also raises country ceiling level of Indonesia from BB to BBB- level and affirm the short-term ratings of foreign-denominated bond at a level B.

Head of Debt Capital Markets, PT NC Securities Heru Helbianto said the increasing Indonesia ratings affect will began with the increasing of confidence from foreign investor in the debt instruments issued by Indonesian government or Indonesian corporation.

"If it had happened, then the cost of issuance of SUN [surat utang negara/government bonds] would be lower, and will certainly spill over into the determination of corporate bond coupon. It can increase the interest of government and market players for the issuance of new bonds, " he said when contacted by Bisnis yesterday.

Based on Bloomberg data, government bonds and corporate Indonesia bond issuance increased sharply from the level of US$4.2 billion in 2008 to US$8.16 billion last year. This was caused by the financial crisis that led to the lack of bonds issuance during 2008-2009.

Bond analyst from PT Trimegah Securities Tbk Ariawan said the increasing rating of Indonesia also potentials to gain more foreign investors. He thinks that sentiment will be more influential in the long term and potentially reduce the global negative condition, as the short term negative sentiment, which is still happen nowadays.

"It will also reduce the negative sentiment of global markets over the last few weeks, that will make Indonesian bond market will more profitable, especially at auction of SUN tomorrow [today]."

The government plans to auction off four series of SUN which have indicative target at Rp5 trillion today. Ariawan sees that increasing ratings will make investors demand in the auction will increase and booming demand as much as the first auction demand which reached Rp14 trillion.

He said foreign sentiment will only affect the short term because of the US plans to restrict bank investment and tightening liquidity policy in China. The ratings increase, he said, will also make instruments belonging to the developing countries will looks better in the eyes of foreign investors.

"Although not yet signed will be transformed to investment grade category, but has become more attractive than before."

However, the Fund Manager of PT Batavia Prosperindo Aset Manajemen Angky Hendra reminded that the rating still have potential risks. Thus, he said, does not instantly make foreign investors directly invest in corporate bonds or Indonesian government bond.

"Maybe the bonds will be ogled by the investors, but there is also a need to wait until its ratings rose to the level of BBB-, investment grade category. This is because the investment criteria of some foreign institutionals investors are strictly limited. "



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