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Indonesia retail bond issue aims to raise $712M

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Rp 100,000 banknotes. Shutterstock.com/Maciej Matlak

Indonesia retail bond issue aims to raise $712M

The Indonesian government is looking to raise 10 trillion rupiah ($711.6 million) from a new series of domestic retail bonds to fund the country’s fiscal deficit and Covid-19 vaccination programme, the Ministry of Finance announced on January 25.

“The proceeds will be used to fund the pandemic handling and economic recovery [efforts] including the mass vaccination [programme],” financing and risk management director-general Luky Alfirman at the ministry said during the launch of the new bond issue on January 25.

The ORI019 bond series has a fixed coupon rate of 5.57 per cent per annum and a three-year tenor, with a maturity date of February 24, 2024.

The retail bond is available to buy online from January 25 to February 18 and is open to purchase by Indonesian individuals for a minimum investment amount of one million rupiah and a maximum investment amount of three billion rupiah. The bond series is tradable on the domestic secondary market starting on April 15.

The fixed coupon rate is “very attractive” for retail investors, as bank interest rates remained relatively low during the coronavirus pandemic, head of fixed income research Handy Yunianto at Mandiri Sekuritas told The Jakarta Post on January 25.

“Although the coupon rate is lower than its predecessor, ORI018, the spread of ORI019 to the deposit rate and Bank Indonesia’s seven-day reverse repo rate is higher than ORI018,” he said, noting that the government’s target was realistic despite the current economic downturn.

The government plans to issue six retail bond series this year, starting with the ORI019, after raising 76.93 trillion rupiah through the issuance of seven retail bond series last year.

It also plans to issue 27.58 trillion rupiah in sukuk (sharia-compliant bonds) this year to finance 870 infrastructure development projects, including projects under the ministries of Transportation, and Public Works and Housing.

The government’s broader plan is to raise around one quadrillion rupiah through sovereign bond issues this year to help revive the coronavirus-battered economy and finance the fiscal deficit, which is expected to reach 5.7 per cent of gross domestic product (GDP) this year.

The estimate is lower than the 6.07 per cent of GDP booked last year, more than twice the initial deficit cap of three per cent.

The economic downturn as a result of the health emergency has sapped tax revenue, spurred government spending and necessitated a record amount of borrowing. Indonesia’s debt-to-GDP ratio is forecast to increase significantly to 40 per cent this year from 30 per cent in 2019.

Indonesia plunged into recession for the first time in two decades during the third quarter of 2020 as the pandemic upended economic activity, but growth is expected to rebound this year driven by the low-base effect and the recovery of domestic consumption, as well as global economic recovery.

The government is currently trying to secure around 426.8 million doses of Covid-19 vaccines in its bid to end the public health emergency and get the economy moving by inoculating around 181.5 million citizens to achieve herd immunity. The majority of Indonesia’s vaccine supply consists of CoronaVac by Chinese biopharmaceutical company Sinovac Biotech, with the remainder from US vaccine manufacturer Novavax.

The country’s nationwide vaccination programme, which involves 8,796 registered medical facilities, commenced on January 13 with President Joko “Jokowi” Widodo receiving the first jab.



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