|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
The Auto Beat
Byte of the Apple
Europe Insight
Eye on Asia
Getting In
Investing Insights
The New Entrepreneur
NEXT: Innovation Tools & Trends
On Media
Technology at Work
The Tech Beat
Traveler's Check
TECHNOLOGY
Product Reviews
Tech Stats
Hands On
AUTOS
Home Page
Auto Reviews
Car Care & Safety
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip FINANCE Investing: Europe Annual Reports Bloomberg BW50 SCOREBOARDS Hot Growth Companies: 2008 Mutual Funds Info Tech 100 B-SCHOOLS Undergrad Programs Rankings & Profiles |  |
JUNE 16, 2003
Give Me Some of That Indonesian Debt Bond investors are back as the country's vital signs improve When Medco Energi Internasional of Indonesia put $150 million in bonds up for sale in May, the offer was eight times oversubscribed. Even more surprising, two-thirds of the interested investors were foreigners. That prompted Medco, Indonesia's largest independent oil contractor, which was heavily restructured in 1999, to increase its offer to $250 million. The extra $100 million also sold quickly. What's behind the intense interest? A 9% yield certainly helped. Plus "new investors are looking for companies that have gone to a lot of trouble to fix themselves," explains Gustiaman Deru, a Medco director. The rush to own a piece of Indonesian debt marks a sharp shift in investor perceptions of that turbulent country. A potent mix of economic and political turmoil, secessionist rebellion, and Islamic terror has made Indonesia one of the world's riskiest investment plays. The situation has been so gloomy that from the outbreak of the Asian financial crisis in mid-1997 to 2001, Jakarta was unable to issue any new debt, sovereign or corporate. But Medco is just the latest in a series of bond issues that amount to an announcement: Investors are again willing to risk a bet on the world's fourth most populous nation. In fact, so far this year, almost $2 billion in dollar-denominated bonds have been issued. That's still small by regional standards, but the rebound is a vote of confidence in Indonesia's economic recovery under President Megawati Sukarnoputri. "The government is playing it quite well now," says Andrew Steer, director of the Jakarta office of the World Bank. The Indonesian rupiah has risen 6% against the U.S. dollar since January, after a 15% rally in 2002. J.P. Morgan Chase & Co. forecasts it will rise 8% more by the end of August. Indonesian stocks are rallying, too -- the benchmark Jakarta composite index is up 19% so far this year. And the economy is on track to grow at least 4% in 2003, marking a fifth straight year of gains. As a result, Standard & Poor's raised its long-term foreign currency rating for Indonesia to B- from CCC+ on May 12. S&P points to the steady progress made in corporate debt restructuring and fiscal reform, plus Indonesia's plan to wind up its loan program from the International Monetary Fund by the end of the year. J.P. Morgan's recommended basket of Asian bonds has gained 7% since Jan. 1, but the Indonesian portion is up twice as much. Traders say there's more good news to come for investors eager to cash in on Indonesia's recovery. Pickings are slim for now. As a bond issuer, Medco Energi is rare by Indonesian standards in that it is not state-owned. But more deals are in the pipeline. J.P. Morgan predicts at least $5 billion in corporate issues over the next few months, and the Indonesian Finance Ministry has hinted that a large sovereign bond will be out next year. "The big show is coming," declares David Fernandez, a fixed-income strategist at J.P. Morgan in Singapore. Some hardy investors have long had a soft spot for Indonesian bonds. In fact, those brave souls who bought government paper before the crisis and had the stomach to hold on to it when default seemed likely are now seeing handsome returns. The so-called Stand-By Loans issued by the government in 1996 now offer a yield of 10.5%, while a 10-year sovereign bond issued that same year has a yield of 7.24%. "When someone makes that kind of a return on an investment, they come away with a good feeling," says Martin Hohensee, a bond strategist at Deutsche Bank in Singapore. Yet it wasn't long ago that Indonesia seemed to be coming unhinged. The turnaround has come under Megawati's tough-minded Finance Minister, Boediono. Since January, 2002, he has implemented a sober fiscal policy that has lowered interest rates and inflation. The payoff has been a stronger currency, higher foreign reserves, and a robust economic recovery. "Money is coming in," says Boediono. "This is the first sign of confidence returning." Current yields on the corporate bonds issued this year range from 6.8% for a $300 million issue by Bank Mandiri to 14.3% for a $500 million tranche by New Orleans-based Freeport-McMoRan Copper & Gold Inc., which runs a gold mine in West Papua province. The paper is being bought both by foreigners and locals who moved their money offshore when Indonesia descended into chaos in 1998. "These are people who really know the nitty-gritty of doing business in Indonesia," says Boediono. As the rate on the Freeport bonds suggests, yields in Indonesia can still be very high. But Indonesians are relieved that there's a market for their debt again after years of drought, something they see as a sign that stability has finally returned.  By Michael Shari in Singapore Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2003, Bloomberg L.P.Terms of Use | Privacy Policy |
Printer-Friendly Version
