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NEWS UPDATES Asean Affairs   16  December 2010

Indonesian companies to issue bonds in 2011

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Indonesian companies are set to issue bonds next year to capitalize on low borrowing costs and stable macroeconomic and political conditions, an official at the stock exchange said on Wednesday.

"Indonesian corporations, especially banks and multifinance companies, will seize the opportunity to raise funds by selling bonds as the economy is growing and the interest rate is low,'' said Eddy Sugito, a director at the Indonesia Stock Exchange (IDX).

He forecast that firms could raise up to Rp 9 trillion ($1 billion) from selling bonds in the first quarter next year.

"Banks, finance companies and some investment companies will sell bonds," he said, declining to name the firms.

"Around Rp 3.5 trillion worth of bonds will be issued by banks."

The economy is forecast to expand by 6.4 percent next year from a targeted 6.2 percent this year, the central bank has said.

It expanded by 5.8 percent in the third quarter this year from a year ago, and Bank Indonesia has kept its benchmark rate at a record-low 6.5 percent since August 2009.

Bernard Thien, president of CIMB Securities Indonesia, said financial institutions would likely prefer to raise funds through selling bonds next year. "Finance companies are bullish on the debt market and positive sentiment will continue next year," he said.

Bank Danamon Indonesia, Bank Panin and Bank Tabungan Pensiunan Nasional, along with finance companies Wahana Ottomitra Multiartha and Adira Dinamika, sold bonds this year.

Anton Gunawan, a senior economist at Bank Danamon, said companies preferred bond sales over bank loans because the cost of borrowing was cheaper.

He said the government's benchmark five-year bond was set at around 6.6 percent, which would allow corporations to sell bonds at a coupon of between 8.5 percent to 9 percent.

"In past years, coupons of corporate bonds were set at 11 percent to 12 percent," he added.

There were 32 bonds issues this year valued at a total of Rp 35. 7 trillion, up from Rp 29 trillion in 2009, Eddy said.

According to media reports, companies that may enter the bond market next year include Bakrie & Brothers, which is expected to sell $200 million of debt in the first quarter.

Medco Energi Internasional, the nation's largest publicly listed gas and oil company, also plans to sell $300 million in dollar-denominated bonds to finance expansion plans.

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