PGN to keep dollar bonds in Mauritius for 1 year

State gas distributor Perusahaan Gas Negara (PGN) will continue paying coupons on its $125 million 2014 bonds and $150 million 2013 bonds out of Mauritius for at least the rest of the year before moving them to another jurisdiction, the Dow Jones Newswires reported from Singapore on Monday.

PGN, along with a clutch of other companies, sold bonds through a Mauritius-based entity after a 1997 tax treaty between Indonesia and the island-state saw withholding taxes on bonds sold from there cut to 10%.

However, at the start of the year, Jakarta ended that treaty which, in turn, saw the withholding tax revert to 20%, raising costs for borrowers unwilling to pass the cost on to bondholders.

Several other borrowers have moved the jurisdiction of their bonds to the Netherlands. However, "it doesn't look good for PGN to be looking as if it is avoiding paying tax, so we will keep it (in Mauritius) for at least one year and then move it," the PGN official said late Friday.

He said the Netherlands was the most likely future home for the bonds and that, in the meantime, the firm would absorb the higher cost from the doubling in withholding tax on the bonds. (*)