The government officially launched Indonesia' first-ever retail bond sale Monday.
Individual investors interested in the three-year treasury bonds, which carry a 12.05 percent fixed coupon, can place minimum orders of Rp 5 million (US$543) with designated sales agents up until Aug. 4. The actual auction of the bonds will be held on Aug. 9.
Speaking during the launch ceremony, Finance Minister Sri Mulyani Indrawati said she expected the introduction of retail bonds would help encourage the development of an "investment society" in Indonesia, in which citizens could participate in helping finance the country's development needs through capital market investments, besides the paying of taxes and depositing of funds in the banking sector.
The right to purchase the bonds is limited to Indonesian citizens, although non-nationals will be able to buy them later on the secondary bond market.
"All the proceeds of the bond sales will go into the state budget so that investors can rest assured that their money is being used accountably ...," Mulyani said.
The government has set an indicative target of Rp 2 trillion from the retail-bond sale, which will form part of the total Rp 35.8 trillion in expected net proceeds from government bond sales this year. The proceeds will be used to help finance the budget deficit, now expected to come in at Rp 37.6 trillion, or 1.2 percent of gross domestic product.
Mulyani was upbeat about the market's appetite for the retail bonds, pointing to their main attraction for individual investors, namely, higher yields compared to bank deposits, and potential capital gains if their prices rise in trading on the secondary bond market.
"We will see how the market actually responds to this new investment instrument. What is important now is that all the necessary information be made available to potential investors," Mulyani said, adding that the government intended to regularly offer retail bonds in the future.
Fully informing the investing public during the three-week-long offer period was crucial, the Finance Ministry's director of bond management, Rahmat Waluyanto, explained, as the government did not want the retail bond market to experience a similar crash to that seen by the country's mutual fund industry last year. This crash was due to a lack of understanding on the part of investors about capital market investment.
"Investing in bonds and mutual funds is different from stocks, which are higher risk and tend to be shorter term in nature. Investors should have long-term horizons for bonds and mutual funds, and avoid being panicked by market fluctuations," he said, explaining why the government had decided to postpone the retail bond auction from Aug. 2 to allow the sales agents more time to better inform investors.
Meanwhile, Bank Indonesia (BI) Governor Burhanuddin Abdullah welcomed the launching of the retail bonds, saying they would provide an alternative investment instrument for the public, and would eventually help reduce the central bank's monetary costs.
"People can invest their money somewhere else besides deposits, the funds from which are sometimes used by the banks to buy our bills," he said.
High inflation and interest rates have recently eroded the demand for loans, encouraging lenders to put their excess funds into BI money-market bills.
The government also hopes to lower its borrowing costs following the introduction of retail bonds as local bonds are not subject to the same risks of fluctuation associated with overseas bonds and loans.
Bank Mandiri president Agus Martowardojo said that the retail bond sale was timely given the current bullish bond market and that the coupon rate was attractive. However, he said that the government needed to clarify its policies on taxation and funding sources to eliminate investor doubt.
Mandiri is one of the 11 designated sales agents for the bonds , with the others being Danareksa Sekuritas, Bank Bukopin, Bank Permata, Bank Danamon, Trimegah Securities, Bank Mega, Bank NISP, Bank Panin, Citibank and Valbury Asia Securities.