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Facility Guarantee to Encourage Corporate Bond Emissions



Facility Guarantee to Encourage Corporate Bond Emissions

Facility Guarantee to Encourage Corporate Bond Emissions

JAKARTA (IFT) – The Credit Guarantee and Investment Facility (CGIF) facility agreed upon by ASEAN Plus Three member countries and the Asian Development Bank (ADB) has become a positive sentiment in the issuance of corporate bonds, analysts said. The value of corporate bond issuance has the potential to increase, while in the secondary market the yield will be in a downward trend.

Ariawan, bond analyst at BNI Securities, said that CGIF was an attractive facility and could stimulate the bond market. “The guarantee of providing trust to investors, and the level of risk is reduced,” he said on Monday.

Ariawan said, the cost of issuing bonds for companies would be cheaper because there are guarantees in the form of credit guarantee facilities. A similar pattern was taken by the Indonesian government in issuing bonds in Japanese yen or Samurai Bond. Where Japan Bank For Cooperatioan (JBIC) is the guarantor of Indonesian samurai bonds so that Indonesia’s ranking will be better.

With a guarantee from the CGIF facility, the rating of a company is in the BBB investment rating up to A. “For issuers, this is beneficial because bond loans are better and the coupons offered are lower. Maybe in the future there will be no more junk bond terms, “Ariawan said.

The CGIF agreement, according to Ariawan, could be a driving factor for corporate bond issuance. He estimated that the issuance of corporate bonds this year could reach Rp 35 trillion-Rp 40 trillion. Potentially higher than 2010 amounting to Rp 35.39 trillion.

In addition, Ariawan estimates that the trend of corporate bond yields from the second quarter tends to fall, although not too large. One of the decreases in yield was contributed by positive sentiment due to the CGIF agreement.

Yose Rizal, Director of the Indonesian Securities Rating (Pefindo), said that the allocation of CGIF funds was useful to reduce investor concerns over the risk of corporate bonds on the international market. Cooperation and coordination between countries is considered very good in the midst of negative sentiment towards developing countries due to upheavals in the Middle East and North Africa and the fiscal crisis in some European countries.

According to Yose, corporate bonds have been hampered by collateral. The amount of the guarantee depends on the company’s ranking, market situation, and returns offered to investors. Bonds issued under the guarantee of a project have not been recognized by investors because the risk of the project failed to be carried out.

“This guarantee depends on the situation, it can be 50% -100% of the value of the bonds to be issued. Therefore, CGIF will be very helpful,” Yose said.

Ignatius Girendroheru, Managing Director of the Indonesia Bond Pricing Agency (IBPA), said the guarantee scheme could improve the quality of private bonds. The guarantee reduces the level of risk of default (default).

In addition, collateral in the form of CGIF has the potential to make the secondary market for corporate bonds more liquid, so far transactions between investors in the national corporate bond market have been lively. The average private bond transaction in the secondary market is around Rp 300 billion per day. It is still quite far compared to government bond transactions that reach Rp 4 trillion-Rp 6 trillion per day.

“With the existence of CGIF, it is expected that the private bond market will become more liquid. Investors want to be able to enter and exit the market easily,” said Ignatius.