“Definitely we expect a better price,” said Rahmat Waluyanto, director general of the debt management office at the Finance Ministry in Jakarta. (source)
Rahmat said Fitch Ratings’ recent upgrade should increase the confidence of foreign investors, which would, in turn, entice more foreign funds to buy Indonesian sovereign debt.
The rating agency on Thursday raised the country’s long-term and local currency debt rating to BBB- from BB+, bringing Indonesia into investment grade 14 years after the Asian financial crisis crippled the region.
Analysts and economists in Jakarta said that Fitch’s move would spur much-needed investment in the country and cut the cost for the government to raise money overseas.
Rahmat said the Indonesian government was planning to sell dollar-denominated bonds in the first semester next year as it wanted to raise funds to plug its budget deficit. The country also plans to sell global Islamic debt next year.
The government forecast the budget deficit to narrow to 1.5 percent of gross domestic product, or Rp 123.6 trillion ($13.7 billion), next year. That would be lower than 1.8 percent of GDP this year. Revenue is set to reach Rp 1,311.4 trillion and expenditure will be at Rp 1,435 trillion next year, according to government data.
Indonesia sold $1 billion worth of Islamic bonds in November this year, the second such debt sale. The Islamic bonds, maturing in 2018, were priced to yield 4 percent — 50 percent lower than the price it paid when it sold $650 million of five-year sukuk bonds in April 2009 at 8.8 percent.
“Definitely we will take a front-loading mechanism,” in selling bonds next year, Rahmat said.
Front-loading refers to a mechanism where the bulk of financing by government will be done in the first six months of next year.
Rahmat also said that investors’ demand for Indonesian bonds should increase and capital inflows would continue.
“With the investment-grade status, we will have more room to manage our debt and secure a more efficient cost with a low refinancing risk,” he said.
The yields on Indonesia’s dollar-denominated bonds and credit-default swaps have been good, which reflects the investment-grade status.
Credit-default swaps, contracts used to protect against or speculate on default, pay the buyer face value if a borrower fails to adhere to debt agreements. A gain indicates deterioration in the perception of credit quality and a decline shows the opposite.
“The rating upgrade means investor confidence is increased,” said Destry Damayanti, chief economist at Bank Mandiri, the country’s largest lender by assets.
“The upgrade should be good for foreign direct investment,” she added.
The yield of the government’s five-year bonds fell to 5.4681 percent on Friday from 5.5454 the previous day, while the yield of the 10-year government bonds fell to 6.1726 percent from 6.3156, according to the Indonesia Bond Pricing Agency. Bond yields move inversely to price.
Rahmat and other analysts in Jakarta said that other rating agencies such as Moody’s Investors Service and Standard & Poor’s should join Fitch in upgrading Indonesia to investment grade next year.
Standard & Poor’s and Moody’s separately upped Indonesia’s rating by one notch to one step below investment grade earlier this year.
The governor of Bank Indonesia, Darmin Nasution, said that the upgrade to investment-grade status proved the success of macroeconomic policies aimed at “maintaining economic growth amid global uncertainty.”
Source : http://www.thejakartaglobe.com/business/officials-say-fitch-upgrade-will-boost-investment-here/485248 - Dec 16, 2011
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