JAKARTA, June 25 - Indonesia's exchange-backed bond pricing agency said it will start publishing daily reference prices for corporate bonds and sukuk, improving transparency to make Indonesian debt more attractive to investors.
In Indonesia, bond deals are mostly done over the counter and based on negotiations between the buyers, sellers and intermediaries. So two identical bonds traded at the same time may be priced very differently depending on the parties involved.
"We have already provided daily valuations for rupiah government bonds. Our target is the third quarter for corporate bonds," Ignatius Girendroheru, president director and chief executive officer of the agency, told Reuters in an interview.
The Indonesia Bond Pricing Agency, or IBPA, is the only such agency in the country and is owned by independent bodies -- the Indonesia Stock Exchange, custodian PT Kustodian Sentral Efek Indonesia and clearing firm PT Kliring Penjaminan Efek Indonesia.
But on any given day, less than 5 percent of the issues are traded, making it even more crucial to have an independent agency to assign reference prices for the illiquid bonds, he said.
The reference prices would help firms planning to sell debt to be able to more accurately predict the cost of borrowing and could be used as a benchmark for those planning to sell or buy bonds particularly of bond issues that seldom trade.
The information will also help auditors to value corporate bonds held by local companies so that banks, firms and investors have a more accurate assessment of the balance sheet risk, Girendroheru said.
IBPA also expects to issue reference prices for ijarah-type corporate sukuk in the third quarter, which is the most common form of domestic sukuk.
Girendroheru said the valuation method for the sukuk would be similar to that of conventional fixed-rate bonds given that their income stream is basically the same. Islamic-compliant ijarah debt is backed by the purchase, sale or leaseback of physical assets, usually property.
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The agency started to issue reference prices for fixed rate, conventional government bonds in December 2008 and for other types of government debt including government sukuk paper since February this year, using internationally accepted valuation methods.
While bond valuations are issued by specialist companies in advanced markets such as the United States, and investors voluntarily use them to comply with regulations such as for corporate governance and investor protection, that isn't the case in developing markets such as Indonesia, Girendroheru said.
But in developing markets such as Indonesia where the level of market maturity has not yet reached that of advanced markets, Girendroheru said that it may require a more active involvement by the authorities to improve transparency over pricing and spur bond market growth.
Local currency corporate bonds were equivalent to just 1.4 percent of GDP in Indonesia as of the first quarter, compared to 34 percent in neighbouring Malaysia, according to a report by the Asian Development Bank, illustrating the potential for growth.
Reuters currently offers daily evaluated reference prices for Indonesia's corporate bonds on <0#ARRPSID=> for conventional bonds and <0#ARRPSSUKUKID=> for sukuk. Reuters speed guide on Indonesian debt <ID/DEBT>. ($1=10330 Rupiah)