Indonesia raises record high $1.27b from retail bonds sale

Indonesia has raised Rp 18.33 trillion (US$1.27 billion) from government retail bond issuance ORI-017, the Finance Ministry announced on Monday, the highest proceeds ever recorded in an online bond offering by the country as the government struggles to finance its coronavirus response.

The Finance Ministry managed to book the figure as individual investors flocked to safe-haven assets amid a volatile financial market due to uncertainties triggered by the COVID-19 outbreak. This is the third year for the government to issue retail bonds online.

“The proceeds will be used to fund the budget deficit, particularly for mitigating the impact of the COVID-19 pandemic,” the Finance Ministry’s director for sovereign debt papers, Deni Ridwan, told a discussion on Monday. “With high appetite from retail investors, we can be more independent in financing the state budget needs.”

Bonds in the ORI-017 series carry a fixed coupon rate of 6.4 percent and have a tenure of three years to mature on July 15, 2023. The debt papers were offered online to Indonesian individuals, who could invest between Rp 1 million and Rp 3 billion each. The bond will be tradable between domestic investors after a two-month holding period.

The Finance Ministry noted that 42,733 investors bought the debt papers offered from June 15 to July 9. They are dominated by millennials, or people between 20 and 40 years of age, followed by the age group of 41 to 55 years and investors aged 54 to 74 years old.

The number of investors who bought ORI-017 worth Rp 1 million jumped by 123 percent compared to the previous series to 2,002 people.

“Aside of being a source of state budget financing, the ORI-017 issuance as part of the government retail bond series is also an effort to nurture an investment culture [among Indonesians] and to create independence in state financing,” the ministry said in a statement on Monday.

The government faces a daunting task to cover a state budget deficit of 6.34 percent of gross domestic product (GDP) this year as it has allocated Rp 695.2 trillion to strengthen the healthcare system and to prevent more severe economic fallout from the pandemic.

Most of the funding to plug the deficit will come from debt financing, as the government expects to raise more than Rp 1.5 quadrillion from bonds this year, around Rp 50 trillion to Rp 75 trillion of which is to come from retail bonds.

“This is a good opportunity to democratize and broaden our debt market so that the government may have a new source of funding from retail investors,” Bareksa CEO Karaniya Dharmasaputra said in a statement on Friday.

The investment marketplace reported an increase of 608 percent in government bond sales from series ORI-017 to ORI-016, which was issued by the government last year, with the number of buyers soaring by 382 percent from last year.

The coronavirus pandemic is taking a toll on the country’s economy as the government expects growth of just 1 percent this year under the baseline scenario, or a contraction of 0.4 percent under the worst-case scenario.

This situation has forced Southeast Asia’s biggest economy to increase its spending at a time when income has fallen to mitigate the economic and public health impact of the coronavirus crisis, resulting in the widening state budget deficit.