Indonesia offers offshore yuan bond as fiscal concerns grow

[JAKARTA] Indonesia began marketing its second offshore yuan bond in four months on Wednesday (Feb 25), testing global investor confidence amid concerns over fiscal woes in South-east Asia’s largest economy.

The government is targeting a benchmark-sized, three-part offering that matures in three, five and 10 years, according to sources familiar with the matter. It may also offer euro-denominated notes at a later stage, said the sources who requested anonymity, discussing private matters.

The issuance would mark Indonesia’s return to the so-called dim sum bond market after its debut sale in October, taking advantage of the Chinese currency’s low borrowing costs. While Indonesia has been diversifying its funding sources in recent years, the debt offering also comes as authorities try to reassure global investors following weeks of market volatility and renewed scrutiny of the country’s worsening public finances.

“The new global bond mandate suggests the MOF maintaining expansive fiscal policy” as the government seems to aim for more aggressive spending in February and March, Lionel Priyadi, a macro strategist at Mega Capital, wrote in a note. He expects the proceeds from both the yuan and euro notes to total US$3 billion to US$4 billion to partly refinance maturing notes this year.

Heightening concerns about the nation’s fiscal health, Indonesia posted a rare budget shortfall in January after the government followed through on its pledge to accelerate spending to support economic growth. Moody’s Ratings lowered the outlook on the South-east Asian country’s credit rating to negative earlier this month, citing risks to fiscal stability.

While Moody’s downgrade triggered a brief sell-off in Indonesian assets, it followed the local stocks’ worst rout in nearly three decades in late January after MSCI warned the nation’s equity market could be reduced to frontier status.

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Indonesia, which raised six billion yuan (S$1.1 billion) via its first dim sum debt issuance four months ago, is among an expanding list of global issuers capitalising on record low offshore yuan interest rates.

Dim sum debt issuance has been booming in recent years, signalling the yuan’s growing popularity in global finance as US President Donald Trump’s tariff war and unpredictable policies weaken the appeal of dollar assets. Beijing has been encouraging such offshore bond sales as a crucial driver of its long-term ambition to turn the yuan into a major world currency. BLOOMBERG