Govt sets retail bond’s coupon rate at 7.3 percent

The government is offering a 7.3 percent return per year on its latest retail bonds, which will be offered starting Friday as a safer instrument for retail investors amid financial market turmoil.

The Finance Ministry’s director general of debt management, Rahmat Waluyanto, said the eighth retail bonds, called ORI 008, had a more competitive yield than the average deposit rate at state-owned banks, which offered 4 to 7 percent depending on the value.

“Also, the tax on ORI is only 15 percent. So the effective rate that investors will receive is higher than deposit rates,” Rahmat said Thursday. Investors are taxed 20 percent on their deposits’ return.

The bonds will have a three-year maturity period, with the yield being transferred to investors’ accounts, in banks or in securities, every month starting Dec. 15 this year.

The Finance Ministry has appointed 25 banks and securities firms as selling agents, including Bank Central Asia (BCA), Bank Mandiri, Bank Rakyat Indonesia (BRI), Danareksa Sekuritas, Trimegah Securities and Standard Chartered Bank.

Rahmat said the retail bonds would fulfill the 2011 revised state budget’s financing needs — consisting of Rp 124.7 trillion (US$13.94 billion) in government bonds to plug the state budget deficit and finance development projects — while, at the same time, widen the market’s investor base.

“Individual Indonesian investors are a potential source of development financing to gradually minimize dependency on foreign debt in the state budget’s financing,” he added.

Foreign investors’ ownership in government bonds peaked to a record 35 percent earlier in August (of over Rp 700 trillion outstanding tradable government bonds), before dropping to 31 percent recently after international funds’ placement slid Rp 33 trillion throughout September.

“Retail bonds are an interesting instrument for retail investors, which normally store their funds in bank deposits,” Bank Mandiri chief economist Destry Damayanti told The Jakarta Post.

“With a coupon rate of 7.3 percent versus a 4 to 5 percent deposit rate, it could attract individual investors.”

The government has offered seven series of retail bonds since 2006, with the last one, ORI 007, selling like hot cakes with strong demand from housewives, private employees and civil servants that totaled Rp 8 trillion.

— JP/Esther Samboh