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The domestic bond market is in for another strong year, with banks and finance companies expected to account for many of the new issues, according to state-owned rating agency PT Pefindo.

Pefindo is predicting a combined total of Rp 25 trillion ($2.75 billion) in domestic bond offers this year, just below the Rp 27.4 trillion last year.

The record for bond issues was Rp 31 trillion in 2007.

Pefindo director Jose Rizal said on Friday that as economic conditions improved and the cost of raising money on the bond market declined, banks and finance firms were rushing to issue bonds to raise funds so they could increase lending.

Two finance companies, PT Astra Sedaya Finance and PT BCA Finance, have already launched Rp 1 trillion and Rp 400 million bond issues, respectively. Meanwhile, PT Bank Mandiri, PT Bank CIMB Niaga, PT Bank Negara Indonesia and finance company PT Federal International Finance are all planning offers this year.

State-owned companies planning major bond offers this year include electricity company PT Perusahaan Listrik Negara (Rp 3 trillion), pawnshop company PT Perum Pegadaian (Rp 2 trillion) and telecommunication company PT Telekomunikasi Indonesia (Rp 2 trillion).

New companies that had not issued bonds before were starting to enter the market, Jose said. Among these companies were regional development banks, who were opting to raise money on the bond market instead of relying on funding from their local governments, he said.

PT Bank Jabar, owned by the West Java provincial government, and PT Bank Jatim, owned by the East Java government, have already sold bonds this year.

Jakarta’s PT Bank DKI, PT Bank BPD Aceh, West Nusa Tenggara’s PT Bank NTB and East Nusa Tenggara’s PT Bank NTT are all planning offers this year.

A plan by the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) to allow companies to make more than one bond offer a year was also expected to boost market activity, Jose said. The new regulation would allow a company that had been permitted, for example, to issue Rp 1 trillion in bonds to stagger the offer in two or more phases during the year, he said.

“This will benefit companies as they will face a lower cost of funds and companies can issue bonds gradually based on their needs,” Jose said.

Adler Haymans Manurung, an independent investment adviser, said the upgrade in the country’s sovereign rating would reduce local companies’ borrowing costs, providing more incentives, especially for investment-grade companies, to raise money on the bond market.

“A higher rating means lower costs for companies in issuing bonds,” he noted.

Adler said companies were expected to refinance an estimated Rp 11.67 trillion of maturing bonds this year by issuing new bonds.

Jose said that on the demand side the local bond market still had a lot of room for growth. The default rate for bond issues this year was expected to remain low at around 1 percent to 2 percent of outstanding issues, he said.