Indonesia Matches Asia’s Biggest Sovereign Dollar Bond Sale

Jan 08, 2014 12:10 am ET

(Updates prices in third paragraph.)

Jan. 8 (Bloomberg) -- Indonesia raised $4 billion from a sale of dollar-denominated bonds, matching a record set by South Korea for the region’s largest sovereign offer, as it seeks to draw global capital and buoy Asia’s worst-performing currency.

The nation issued $2 billion of debt due in 10 years to yield 5.95 percent and $2 billion of securities maturing in 30 years at 6.85 percent, according to a statement today from the finance ministry’s debt management office. That compares with rates of 5.684 percent for existing notes due 2023 and 6.352 percent for 2043 notes, Bloomberg-compiled prices show.

The sale, which drew bids for four times the amount on offer, follows a November domestic dollar debt offering that failed to meet its goal. The rupiah plunged 21 percent in the past year to 12,240 per dollar after foreign reserves stayed below $100 billion for a sixth month in November. A record current-account deficit prompted Bank Indonesia to raise its benchmark rate by 1.75 percentage points since early June, which worked to slow the economy and reduce imports.

“Indonesia must offer a decent risk premium considering market expectations for rising interest rates,” Mika Martumpal, the head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta said yesterday before the offering was completed.

Investor Spread

Investors submitted $17.5 billion of bids, or 4.4 times the amount offered, according to the finance ministry’s statement. The nation allocated 66 percent of the 10-year notes to investors based in the U.S., 17 percent to investors in Europe, 6 percent to investors in Asia, excluding Indonesia, and 11 percent to onshore funds.

Some 70 percent of the 30-year debentures were sold to U.S. funds, 16 percent to Europe, 11 percent to Asia, except for Indonesia, and 3 percent to local investors.

This “should add to foreign reserves,” Robert Pakpahan, a director general in Indonesia’s debt management office, said via mobile-phone text message today. “The very strong incoming bids from the U.S. show the tapering issue doesn’t have too big an impact on Indonesia.”

South Korea sold $4 billion of dollar bonds in a two-part sale in April 1998, according to data compiled by Bloomberg.

The rupiah touched 12,285 yesterday, the weakest level since December 2008, according to prices from local banks. Its one-month implied volatility, a measure of expected moves in the exchange rate used to price options, is at 14.7 percent, the highest among global currencies.

Record Target

Indonesia is seeking to raise a record 357.96 trillion rupiah ($29.2 billion) from international and local debt markets this year, Indonesia’s debt management office said in a statement yesterday. Of that, some 6.55 trillion rupiah will be procured via loans, according to the statement.

Dollar borrowing costs for Indonesian issuers rose to 6.44 percent on Jan. 7, the highest in a month, according to JPMorgan Chase & Co. indexes. Benchmark 10-year Treasury yields climbed by the most since 2009 last year as the U.S. economy improved enough for the Federal Reserve to start reducing its bond purchases, prompting some money managers to bet stimulus that has buoyed emerging-market assets will end within 12 months.

Indonesia’s dollar debt is the worst performer over the past 12 months among 11 Asian emerging markets tracked by HSBC Holdings Plc. The notes have lost 1.3 percent this year-to-date versus 5.2 percent for dollar notes in the Philippines and 3.7 percent for debt in Thailand.

Sooner the Better

The yield on the nation’s 5.375 percent bonds due October 2023 has about climbed 30 basis points, or 0.30 percentage point, since they were sold in July to 5.75 percent on Jan. 7, handing investors a 1.2 percent loss.

“Global yields are set to climb from here on out so the sooner they issue, the better,” Ezra Nazula, the head of fixed- income at PT Manulife Asset Management, which oversees about $3.8 billion, said yesterday.

Indonesia last tapped the international debt capital markets in September when it sold $1.5 billion of five-year Islamic bonds at the highest rate since 2009. It raised 10 trillion rupiah in its first local-currency debt auction of the year yesterday, meeting its goal, with investors submitting 29.6 trillion rupiah in bids.

The government hired Bank of America Corp., Citigroup Inc., Deutsche Bank AG, PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas to arrange the latest sale, according to the finance ministry’s statement.

The country follows Sri Lanka, which sold $1 billion of five-year bonds at a 6 percent yield on Jan. 6, in tapping the global market this year. The Philippines, which has sold dollar bonds in January for seven out of the last 10 years, met with fixed-income investors last month.

--Editors: Anil Varma, Katrina Nicholas