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Bond issuers, investors ditch long-term options amid volatile market
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Bonds grader: Credit rating agency Pemeringkat Efek Indonesia (Pefindo) president director Salyadi Saputra (right) answers questions from journalists on the sidelines of the company's press conference in Jakarta on Tuesday. (JP/Anton Hermansyah)
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mid market volatility, many local firms now prefer to offer short-term bonds that mature in between 1 and 5 years in an effort to minimize risks, a credit rating agency says.
Pemeringkat Efek Indonesia (Pefindo) president director Salyadi Saputra said the company’s data showed that only 12.4 percent of bonds issued in the January-November period had a tenor of 5 years or longer. Most issuers, meanwhile, opted to offer bonds at a 1, 3, or 5-year tenor.
"Many firms now prefer to issue bonds with a 5-year tenor even though they may have long-term expansion projects. After a bond matures, then they will refinance it by issuing other bonds," Salyadi said on Tuesday at the Indonesian Stock Exchange (IDX) building.
(Read also: Companies jump on bond bandwagon in Q4)
Salyadi said between 2008 and 2012, over 20 percent of the bonds issued offer either a 7 or 10-year tenor. However, after the commodity boom ended, companies were less likely to issue long-term bonds.
Salyadi added that the refinancing option also had other risks, such as higher coupons, additional administrative costs, and volatile market conditions. Meanwhile in the buy side, investors tended to be reluctant to buy long-term corporate bonds. If so, they would only buy bonds with high-credit quality, like those issued by state-owned companies
"However, those kinds of long-term bonds are rare in the market. Even many [managers of] pension funds that have to invest for the next 20 to 25 years, prefer short-term bonds and then to buy more after they mature," he said. (hwa)
