Indonesia raises US$2.65b amid bullish market streak

INDONESIA raised US$2.65 billion from the sale of US dollar bonds, with its newfangled popularity among investors helping it offset the global rise in borrowing costs.

The new offering's 5-year tranche priced to yield 4.4 per cent, matching the 5-year extrapolated yield for the sovereign's existing US dollar notes, according to data analysed by Bloomberg. The 10-year maturity also fell in line with the market.

Helped by their commodities exposure, Indonesian assets have emerged as a haven this year, with the equity market up nearly 10 per cent. Spreads on the country's US-currency debt narrowed the most in more than 2 years in August.

But the 30-year portion of the debt, which Fitch rates BBB, priced more than 20 basis points outside the curve, indicating the government had to pay extra. Still, Indonesia received orders exceeding US$9 billion, with the longest maturity more than 6 times oversubscribed.

The offering by South-east Asia's largest economy attracted investors from Europe and North America, part of deluge of bond deals around the world this week. Activity in Asia's primary US dollar bond market was brisk for a second day on Wednesday (Sep 7), following a flurry of deals overnight by US firms that offered the largest amount of notes in 12 months.

Strong US dollar and rising interest rates have crimped US-currency bond sales across the region this year, with only 1 company in Indonesia - South-east Asia's largest economy - issuing US-currency debt.

But issuers across Asia returned to the market this week, taking advantage of a drop in spreads, to lock in funding before the Federal Reserve's next meeting, at which officials are expected to raise interest rates again.

The deal could "kick off US dollar fundraising from state-owned enterprises as they act to manage liabilities and secure liquidity," Bloomberg Intelligence analysts Mary Ellen Olson and Sheenu Gupta, wrote in report. That may create "a near-term drag on spread performance."

Proceeds of the bond sale will be used to repurchase outstanding debt as well as for government expenditure, which has risen due to higher energy subsidies.

President Joko Widodo decision to ease pressure on the state budget by raising fuel prices by more than 30 per cent was met by public protests this week, including in Jakarta. BLOOMBERG

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