Indonesia sold $3 billion of 10- and 30-year dollar bonds at record low borrowing costs, tapping the global market for the first time this year, according to a person familiar with the offering.
The nation issued $1.5 billion of notes due April 2023 to yield 3.50 percent, its cheapest-ever financing for non-Islamic bonds denominated in the U.S. currency, said the person, who asked not to be identified because he’s not authorized to speak publicly. Indonesia also sold $1.5 billion of debt maturing in 2043 to pay 4.75 percent. The 10-year securities yielded an extra 1.76 percentage points over similar-maturity Treasuries, while the 30-year spread was 1.84 percentage points.
The average yield on Indonesian sovereign bonds has fallen 19 basis points to 4.17 percent since climbing to an eight-month high of 4.36 percent on March 28, according to JPMorgan Chase & Co.’s EMBI Global indexes. The rupiah’s 6 percent drop versus the dollar in the past year has been pushing up debt servicing costs for the Southeast Asian nation, which plans to cut the proportion of bonds sold in foreign currencies to 14 percent in 2013 from 21 percent last year, Robert Pakpahan, director general at the debt management office in Jakarta, said Feb. 6.
“This year is the right time to issue global bonds before global yields begin to rise in the coming years,” Herdi Wibowo, the head of debt capital markets in Jakarta at PT BCA Sekuritas, a unit of the nation’s largest lender by market value, said before the offer. “The government is taking the opportunity to sell as soon as possible due to prospects for a recovery in the U.S., which will prompt global inflation to start picking up.”
Investors submitted $12.5 billion of bids, according to a statement on the debt management office’s website. Funds in the U.S. and Europe were allocated 70 percent of the 10-year bonds and 83 percent of the 30-year notes, while Indonesian investors bought 13 percent of the 10-year debt and 4 percent of the longer-dated securities, according to the statement.
PT Danareksa Sekuritas, JPMorgan, Deutsche Bank AG, Standard Chartered Plc and PT Mandiri Sekuritas assisted with the sale.
The 5.9 percent drop in the rupiah against the dollar in 2012 boosted debt servicing costs to 982 billion rupiah ($101 million), according to finance ministry data compiled by Bloomberg. The average dollar debt yield for Asian borrowers was 3.52 percent, approaching October’s record low of 3.35 percent, an HSBC Holdings Plc index shows.
Indonesia plans to tap the international market again in the second half, Loto Srianita Ginting, director of government securities at the debt management office, said April 3. The government sold dollar-denominated debt three times last year, with the most recent a November offer of $1 billion of 10-year Islamic notes with a coupon of 3.3 percent. The yield on the bonds has since climbed five basis points, or 0.05 percentage point, to 3.35 percent, data compiled by Bloomberg show.
The extra yield investors demand to hold Indonesia’s dollar notes rather than similar-maturity Treasuries has widened 40 basis points this year to 219, according to JPMorgan. Government dollar bonds due 2042 have climbed over the past seven trading days, cutting the yield 24 basis points to 4.59 percent.
The cost of insuring Indonesian debt using five-year credit-default swaps fell six basis points to 158 basis points last week, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Bank of Japan (8301) will double its monetary base by the end of 2014 by buying government bonds, the central bank said on April 5, in the nation’s largest round of quantitative easing.
“The government is offering quite high yields to make sure its first sale is a success, which will set the trend for the rest of the year,” said Ezra Nazula, the Jakarta-based head of fixed income at PT Manulife Asset Management Indonesia, which oversees 25 trillion rupiah of debt. “The timing is good, with all things considered, right after the recent announcement for monetary easing by Japan.”
Moody’s Investors Service and Fitch Ratings assigned the bonds their lowest investment grade rankings, according to statements yesterday. Standard & Poor’s rated the offer, part of a $20 billion program, at the highest junk level, it said in a note yesterday.
Fitch and Moody’s restored Indonesia to investment grade more than a year ago. S&P has refrained from following them, saying last April that the country was at risk from “policy slippages” such as its failure to cut fuel subsidies.
The government is still looking at ways to trim the fuel- subsidy bill. It is considering measures to limit usage, while not ruling out price increases, Finance Minister Agus Martowardojo said in March.
Indonesia’s dollar-denominated debt has returned 7.9 percent in the past year, the fourth-worst performance among 11 Asian economies tracked by HSBC Holdings Plc indexes. South Korea, Malaysia and Singapore delivered lower returns, while Pakistan’s 21 percent gain was the best performance.
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