Indonesia Raises $2.5 Billion From Its First Dollar Bond Sale of This Year

Indonesia sold $2.5 billion of 10- year dollar bonds after attracting bids for almost three times that amount, tapping appetite for the assets of developing economies that are poised to grow faster than advanced nations.

Southeast Asia’s largest economy sold the 4.875 percent bonds due May 2021 at a yield of 5.1 percent yesterday, the finance ministry said in a statement. Bids totaled $6.9 billion, or 2.76 times the amount offered, it said.

Developing-nation debt offerings are off to a record start this year after near-zero interest rates in the U.S. and Japan and the Federal Reserve’s quantitative easing fueled the biggest investor flows to emerging-market bonds on record in 2010, based on data from EPFR Global. Issuance of international debt from emerging markets climbed 10 percent this year to $265 billion, data compiled by Bloomberg show. Indonesia had a budget deficit of 0.6 percent of gross domestic product in 2010.

“I like the credit,” Lazlo Belgrado, a fund manager at KBC Asset Management SA in Luxembourg, said in an interview yesterday. Indonesia has “strong fundamentals. So for me this is still a buy in emerging-market dollar debt,” he said.

The new bonds gained, with the yield falling to 4.984 percent as of 12:46 p.m. in Singapore, according to prices from Royal Bank of Scotland Group Plc. The rupiah climbed 0.6 percent to 8,579 per dollar.

The dollar bonds were sold at a spread of 175 basis points above U.S. Treasuries, said a person familiar with the sale, who asked not to be identified because he wasn’t authorized to speak publicly on the matter.

Spread Narrowing

Indonesia last sold 10-year dollar bonds in January 2010 at a yield premium over U.S. Treasuries of 228 basis points, according to Bloomberg data. The spread has since narrowed to 164 basis points. Indonesia sold $2 billion of the debt, and received orders for 2.3 times the amount on offer. The Philippines sold $1.5 billion of 15-year dollar debt in March, attracting $6.5 billion in bids.

In the latest sale, 49 percent of the securities were sold in the U.S., 29 percent in Asia and the rest in Europe, the government said. Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG were the lead arrangers for the sale. PT Danareksa Sekuritas and PT Mandiri Sekuritas also helped sell the notes, the government said.

“Indonesia is a country that a lot of people like,” said Rajeev de Mello, who helps oversee $454 billion as head of Asian investment in Singapore at Western Asset Management Co., the Pasadena, California-based fixed-income unit of Legg Mason Inc. “The total debt to GDP is low. There are not that many Asian dollar-denominated bonds anymore in the sovereign space” that will be issued this year, he said.

Rating Upgrade

Indonesia’s dollar debt of has returned 7.8 percent over the past year, indexes compiled by HSBC Holdings Plc show. Indonesia is giving the third-best returns among the 11 Asian nation indexes tracked after the Philippines and Thailand.

The country raised almost $3 billion from global bonds last year, including $2 billion of dollar notes and 60 billion yen ($732 million) of samurai debt denominated in Japan’s currency. The amount sold was lower than the $4 billion in 2009.

The country may issue dollar-denominated Islamic debt in the second half, Dahlan Siamat, director of Islamic finance at the Finance Ministry, said in an interview April 25.

Standard & Poor’s boosted Indonesia’s sovereign credit rating to BB+ this month with a positive outlook, while Moody’s Investors Service raised its ranking to Ba1 on Jan. 17, citing the nation’s “economic resilience” and improving debt position. Fitch Ratings assessed Indonesia at BB+. All three ratings agencies rank the country one level below investment grade.

Gross domestic product in emerging-market nations will increase 6.5 percent this year, compared with 2.4 percent in developed countries, according to forecasts made by the International Monetary Fund on April 11. Indonesia’s growth may accelerate to 6.2 percent in 2011 from an estimated 6.1 percent last year, the IMF said.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Boris Korby in New York at bkorby1@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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