Bloomberg News

Indonesia to Sell $2.5 Billion of 2022, 2042 Bonds Overseas

April 17, 2012

Indonesia is planning to sell $2.5 billion of bonds overseas, tapping global investors to spur economic growth for the second time this year after winning an investment-grade rating.

The Southeast Asian country is offering $2 billion of 10- year bonds to yield 3.85 percent, according to a person familiar with the matter, who asked not to be identified because the details are private. The country is also issuing $500 million more of its existing 5.25 percent bonds due 2042, the person said. The additional notes are being offered at a yield of 4.95 percent, according to the person.

Indonesia is taking advantage of relative borrowing costs close to an eight-month low as the government plans to spend $53 billion until 2020 to build railways, airports and seaports. Emerging-market debt sales reached $326 billion this year, showing demand for those bonds even as Europe’s debt crisis worsened.

“This is a rare issuance with relatively low risk,” said Teddy Satriadi, the Jakarta-based head of fixed income desk at PT Bank Negara Indonesia. “News of the investment grade award is still in investors’ minds and there is demand in the market for dollar-denominated issuance, whether it is corporate or government.”

Rating Upgrades

Indonesia’s 10-year bond offering at 4.05 percent will give investors a spread of 204 basis points over U.S. debt, according to data compiled by Bloomberg. That compares with the 4.36 percent yield on Russia’s 4.5 percent dollar notes due April 2022, 231 basis points more than Treasuries.

Fitch Ratings raised Indonesia’s ranking by one level to BBB- in December, followed by Moody’s Investors Service to Baa3 in January. Both are the lowest investment grades. Russia is rated two levels higher at Moody’s.

The extra yield investors demand to hold Indonesia’s dollar-denominated securities rather than similar-maturity Treasuries narrowed 46 basis points this year to 228 points, according to JPMorgan Chase & Co.’s EMBI Global index. The spread reached 188 points on March 19, the lowest level since Aug. 5, 2011. The average yield premium for developing nations’ debt was 363 basis points yesterday, down 64 points this year, according to JPMorgan indexes.

‘Quite an Achievement’

Indonesia’s dollar debt returned 14 percent in the past year, the second-best performance in Asia after the 17 percent gain on the notes of the Philippines, indexes compiled by HSBC Holdings Plc show.

Five-year credit-default swap contracts on Indonesia’s debt dropped 37 basis points this year to 171 as of April 16, according to data provider CMA, which compiles prices quoted by dealers in the privately negotiated market. The contracts insure debt against non-payment and traders use them to speculate on credit quality.

The Southeast Asian country raised $1.75 billion from the sale of the 30-year bonds in January, data compiled by Bloomberg show. The bonds yielded 4.881 percent yesterday, before the new deal was announced, according to Royal Bank of Scotland Group Plc prices on Bloomberg.

Manulife Asset Management, which has Asian bond holdings of about $34 billion, favors holding Indonesia’s rupiah securities instead of its dollar debt because of the risk that U.S. yields may rise.

“We definitely like Indonesia,” said Neal Capecci, a portfolio manager in Hong Kong at Manulife Asset. “We think Indonesia should be on a path of sovereign upgrades. We prefer to buy the local sovereigns.”

Economic Growth

Rupiah 10-year bonds yield 6.08 percent, 407 basis points more than similar-maturity U.S. bonds, according to data compiled by Bloomberg. The U.S. 10-year yield has risen 13 basis points this year to 2.01 percent after dropping 142 basis points in 2011.

Rahmat Waluyanto, director general at the finance ministry’s debt management office, didn’t immediately reply to a mobile-phone text message seeking comment. Bhimantara Widyajala, a director at the debt office, declined to comment when asked by mobile-phone text message about sale plans.

Economic growth may reach 6.3 percent to 6.7 percent this year and accelerate to as much as 6.8 percent in 2013, the central bank said on April 12.

JPMorgan Chase & Co. and Standard Chartered Plc are managing the offers, according to a person familiar with the sale.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Rachel Evans in Hong Kong at revans43@bloomberg.net; Yudith Ho in Singapore at yho35@bloomberg.net

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Shelley Smith at ssmith118@bloomberg.net


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