Indonesia: COVID-19 causes hard time for corporate bond issuance
The issuance of corporate bonds in Indonesia will likely decline this year as many companies shelve plans to seek funding because of unfavorable global economic conditions, analysts have said.
Jakarta (VNA) – The issuance of corporate bonds in Indonesia will likely declinethis year as many companies shelve plans to seek funding because of unfavorableglobal economic conditions, analysts have said.
IndonesiaSecurities Pricing Corporation (PHEI) has lowered its bond issuanceforecast from 170 trillion rupiah (11.3billion USD) to around 100 – 110 trillion rupiah this year in new issuances orrefinancing.
The slowdown hasbeen apparent since the first quarter of the year when a total of 21.34trillion rupiah worth of bonds was issued, lower than 30.39 trillion rupiah inthe same period last year, PHEI president director Yoyok Isharsaya said.
He attributedthe decrease in bond issuances this year to growing uncertainties in the globaleconomy caused by the COVID-19 pandemic, which has paralyzed the majority ofeconomic activities around the world.
In early Aprilthis year, the International Monetary Fund (IMF) cut its projection forIndonesia’s GDP growth to 0.5 percent from 5.1 percent in its Octoberprojection. Based on the government’s worst-case scenario, economic growthcould plunge to 0.4 percent, far lower than its initial estimate of 5.1percent.
Rating agency Pefindoanalyst Fikri C. Permana said on May 6 that he expected companies to delaytheir bond issuances as they waited for the right moment to get a reasonablecost of funding.
AlthoughIndonesian central bank BI has lowered its interest rate, cost of funding isstill quite high for companies at this time because the benchmark 10-year governmentbond yield has risen, he said.
The BI has slashedinterest rates by 50 basis points this year, bringing the benchmark seven-dayreverse repo rate down to 4.5 percent.
The lowinterest rate, however, has not brought down the corporate bond coupon rate, asIndonesia’s 10-year government bond yield currently sits at 8.07 percent, muchhigher than the 6.5 percent yield it recorded in early March before COVID-19spread across the country.
Given thesituation, Fikri expected corporate debt paper issuances this year to onlyreach 116.9 trillion rupiah, well below last year’s 146.49 trillion rupiah.Most of this year’s issuances are projected to be intended for refinancingpurposes./.
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Illustrative photo. (Source: Reuters)
