The four-year deal priced at par with a coupon of 9.4%, payable monthly. A total of 22,837 retail investors participated in the transaction which stipulated a minimum order of Rp5 million. The bonds were sold to individuals of Indonesian citizenship through 16 selling agents, providing investors with a higher coupon rate than traditional time deposits.
PT Bank Mandiri, Danareska Sekuritas, and Lippobank, were among the banks involved in the transaction, which was executed last week, with Citi as the only foreign primary dealer nominated for the distribution of government retail bonds.
ôThese bonds are essential in providing retail investors with an alternative avenue for investment to diversify their risk portfolio,ö says Bimo Notowidigdo, treasurer for Citi Indonesia. ôKey to the offeringÆs success is a focus on educating customers, and getting them more comfortable with investing longer term, away from traditional time deposits, closed-end funds or open-ended mutual funds.ö Citi has conducted several seminars, ORI talkshows and media interviews to educate retail investors about the risks and benefits of government retail bonds.
Retail investors provide an under-utilised opportunity to raise funds, according to Notowidigdo. ôThe success of ORI bonds reflects a growing retail investor appetite and we will begin to see corporates or other issuers attempt to tap the retail customer base since thatÆs where the real liquidity currently lies. Furthermore, these are not the type of investors who easily trade in and out of the market.ö
Domestic corporate issuance has been low, but concerns over high interest rates are being countered by increased demand for hedging instruments to reduce the overall cost of borrowing. ôThe government is pushing hard to provide a repo facility, while Citi have launched bond options to provide specific bond derivatives,ö says Made Artha, head of investor sales, fixed income, currencies and commodities at Citi Indonesia. Deutsche has done the same.
In the meantime, market observers look forward to the government continuing to play an important role in the enhancement of IndonesiaÆs bond market. Last year, the government issued the countryÆs first 30-year paper, providing an essential benchmark for issuers of long-term debt. Furthermore, the Indonesian government has issued Rp3 trillion to Rp4 trillion in 12-month treasury bills each month in order to improve the liquidity at the short end of the yield curve since April 2007.
Trading volume in government bonds has increased from $70 million a day in 2000 to $540 million a day year-to-date.