Bond prices in Indonesia to get more transparent valuation

The Jakarta Post ,  Jakarta   |  Mon, 07/21/2008 10:34 AM  |  Business

The valuation of bonds will become more transparent when bond pricing agency PT Penilai Harga Efek Indonesia comes on line next year, president of the Indonesia Stock Exchange (IDX) Erry Firmansyah says.

The agency will establish benchmark prices for all obligation products issued in Indonesia, by both government and corporate bonds, including conventional and Islamic bonds.

The benchmark system, which will be based on a standard-value calculation formula, is expected to boost the transparency of bond prices, and will replace the current over-the-counter pricing system.

The agency will give daily price updates on debt securities using data calculated from investor and trader reports submitted to the Capital Market and the Financial Institution Supervisory Agency (Bapepam-LK). It will also be responsible for rating bond issuers.

The agency, which was established on July 1, is in the process of acquiring Rp 30 billion in capital to fund its initial operations, as advised by the Bapepam-LK, Erry said.

The agency's ownership is comprised of three self-regulated organizations: the Indonesia Stock Exchange, PT Kustodian Sentral Efek Indonesia and PT Kliring Penjaminan Efek Indonesia.

Erry said the agency had already acquired half of the required capital and would draw the rest from other financial institutions whose interests would not conflict with those of the agency's, including the central bank and local index agency Pefindo. Securities brokers are not allowed to provide funds to the agency.

The pricing agency, he said, also needed to fill two more expert staff positions.

Erry said the new system would hopefully prevent the collapse of mutual funds, as happened in 2005, and increase transactions of obligations. Only 20 to 30 percent of the combined 500 government and corporate bonds are traded actively in the market.

The agency will sell its information to users, including the publicly listed companies, banks and investment agencies. However, it will publish necessary information to the public for free.

Similar benchmark systems are currently in use in other countries, including Mexico, Korea and Malaysia. (mri)

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