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The government swapped Rp 907 billion (US$99 million) of
treasury bonds due between 2007 and 2009 for new ones maturing in 2014
as part of its efforts to restructure Indonesia's bond portfolio.
A total of Rp 1.47 trillion in bids were received from bondholders
during Tuesday's open auction for the bond switch, said the Finance
Ministry's director general for debt management, Rahmat Waluyanto.
Investors traded in six series of variable-rate and fixed-rate bonds --
carrying average weighted yields of between 8.47 and 11.36 percent --
for the new eight-year, fixed-rate FR0026 bonds with an average
weighted yield of 10.61 percent.
The latest bond swap was by value lower than the government's previous
trade-in on Oct. 17, which was worth Rp 4.25 trillion, but managed to
book a lower yield than the previous 11.02 percent.
The government has been refinancing its maturing higher-yielding bonds
-- either by buying them back or exchanging them for lower-yielding
ones -- to cut the cost of the interest it pays to investors, and
better manage their redemption.
It also wants to minimize its portfolio of variable-rate bonds, whose
costs are more susceptible to changes in the central bank's key
interest rate, on which they are based on.
The government would face the risk of having to pay up to Rp 40
trillion in due bonds between 2007 and 2009 if they were not
refinanced. These include the Rp 450 trillion worth of high-yielding
bonds it issued to bail out failing banks during the 1997 Asian
financial crisis.
Bank Indonesia's rate cuts over the year of 2.5 percentage points,
bringing its key rate down to 10.25 percent, has helped these efforts.
However, investors are not losing out either, with the bulk of the
transactions in Tuesday's bond swap consisting of variable-rate bonds
with 8 and 9 percent yields being exchanged for the new 10-percent
yielding bonds.
The yields on government bonds also depend on Indonesia's ratings from
global credit rating agencies, all of which continue to rate Indonesian
bonds as junk, or still below investment grade. While this can send
their yields higher, it can also help maintain the attractiveness of
Indonesian bonds to investors.
Bonds sales are now the government's main means of financing this
year's Rp 36.9 trillion budget deficit, with Indonesia looking to raise
Rp 35.8 trillion in net proceeds from bond sales.
The government has so far sold Rp 62.5 trillion of bonds, and swapped
another Rp 24.8 trillion.
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