Aditya Wikrama, Yohanes Obor & Muhamad Al Azhari

Bond Issuers Making the Most Of Low Inflation, Interest Rates

Corporate bond issuances in Southeast Asia’s largest economy are predicted to reach Rp 25 trillion ($2.5 billion) this year, far exceeding the Rp 15 trillion target set by the Indonesia Stock Exchange early this year, the bourse said on Wednesday.

Analysts said the time was ideal for issuing bonds because the central bank’s key interest rate is seen to be bottoming, prompting government bond yields — the benchmark for corporate bonds pricing — to fall.

At the same time banks remain reluctant to lend and are keeping rates high, leading companies to issue debt to finance growth or refinance existing liabilities.

Wan Wei Yiong, a director at the stock exchange, told reporters on Tuesday that corporate bond issuance had reached Rp 17 trillion in the first half. He said there were seven more planned issues worth Rp 8 trillion.

Handy Yunianto, a debt market analyst at PT Mandiri Sekuritas, said bond prices were improving because “interest rates are falling.”

Since December, Bank Indonesia has slashed its key rate by 2.75 percentage points to 6.5 percent in a bid to encourage lenders to lower their rates and stimulate growth.

Kahlil Rowter, president director of ratings agency PT Pemeringkat Efek Indonesia, said inflation and interest rates were seen to be bottoming. “As economic growth slowed, inflation fell, but next year inflation is expected to rise, so it’s better to issue now and lock in cheap prices compared with next year,” he said.

Kahlil expects even higher bond issuances this year at Rp 30 trillion, partly because many firms with bonds maturing this year are likely to roll over their debt. He also said there were issuers that delayed plans to offer bonds in 2008 to take advantage of low interest rates this year.

Seto Wardono, a bond analyst at PT Indopremier Securities, said the yield on 10-year government FR0036 bonds was 11.97 percent in December, but it had declined to 10.48 percent as of Tuesday, meaning corporate bonds with similar maturity dates would be cheaper.

Despite the strong corporate bond outlook, Kahlil said issuance would still play a small part in private sector financing compared with bank loans.

He said that with this year’s expected debt issues, total outstanding corporate bonds would remain below Rp 100 trillion.

Total outstanding bank loans in Indonesia are at Rp 1,300 trillion as of May, according to BI.

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