Indonesia raises US$2.7b amid bullish market streak

INDONESIA raised US$2.65 billion (RM11.92 billion) from the sale of dollar bonds, with its newfangled popularity among investors helping it offset the global rise in borrowing costs.

The new offering’s five-year tranche priced to yield 4.4%, matching the five-year extrapolated yield for the sovereign’s existing 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%. Spreads on the country’s US-currency debt narrowed the most in more than two 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 six times oversubscribed.

With the Federal Reserve expected to continue raising interest rates, investors want a premium to offset a potential decline in value of long-dated bonds, said Luky Alfirman, the Indonesian finance ministry’s director general of financing and risk management.

Despite “the volatile market, the government managed to suppress yield” relative to the early stage of the deal, he said.

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 dollar bond market was brisk for a second day on Wednesday, following a flurry of deals overnight by US firms that offered the largest amount of notes in 12 months.

Tenor New bond yield Extrapolated yield
5 year 4.4% 4.4%
10 year 4.8% 4.8%
30 year 5.55% 5.34%

Strong dollar and rising interest rates have crimped US-currency bond sales across the region this year, with only one company in Indonesia — Southeast 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.

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% was met by public protests this week, including in Jakarta. – BLOOMBERG