Indonesia may offer dollar-denominated conventional and Islamic bonds targeted at local investors this year, to curb price swings caused by capital outflows.
“In the next issuance of global bonds, we might want to increase the allocation for domestic investors, or we might issue entirely in the domestic market,” Rahmat Waluyanto, director-general of the Finance Ministry’s debt management department, said in an interview in Jakarta yesterday. “We need to be vigilant as this can cause some potential risks, especially if there is any trigger to market volatility.”
The dollar debt of Southeast Asia’s largest economy has handed investors a gain of 16.3 percent in the past year, indexes compiled by HSBC Holdings Plc show, the best returns in the region. Indonesia plans to sell 200.6 trillion rupiah ($22.1 billion) of local and foreign debt in 2011 to fund a budget deficit estimated to reach 124.7 trillion rupiah, 1.8 percent of gross domestic product.
The government may not offer rupiah bonds to global markets, unlike the neighboring Philippines which has already sold peso bonds twice overseas in the past four months, Waluyanto said. The increase in foreign ownership of rupiah government bonds to 30.8 percent as of Jan. 10 from 0.5 percent in 2003 is a consideration, he said.
Indonesia’s bonds will be “well received,” whether sold locally or overseas, said Branko Windoe, head of treasury at PT Bank Central Asia in Jakarta. “We are moving closer to becoming an investment-grade country.”
The nation’s 10-year dollar bonds gained. The yield on 5.875 percent due March 2020 fell 6.5 basis points to 4.59 percent, prices from the Royal Bank of Scotland Group Plc showed.
Benchmark 10-year rupiah bonds rose after five days of losses. The yield on the 8.25 percent note due July 2021 fell 21 basis points to 8.26 percent, according to midday prices from the Inter Dealer Market Association.
The foreign-currency bonds to be offered this year will include dollar-denominated conventional and Islamic bonds, which may be issued within the first half, and samurai securities in the second half, he said. Islamic bonds, known as sukuk, comply with Shariah law by using asset returns to pay investors instead of interest.
Indonesia raised almost $3 billion of global securities last year, including $2 billion of dollar bonds and 60 billion yen ($722 million) of samurai notes denominated in Japan’s currency. The amount sold was lower than the $4 billion in 2009. The government usually sets aside 5 percent of the overseas bonds for local investors to buy, Waluyanto said.
“We can’t prohibit foreign investors from buying our bonds,” he said. “This is unfriendly market policy. Instead, we need to counterbalance by developing our own domestic investor base by diversifying instruments.”
Indonesia’s rupiah debt returned 15.2 percent in the past year, the top gainer among 10 Asian government debt markets compiled by HSBC. The currency rose 1.3 percent over the same period.
Foreign ownership of the government’s domestic debt increased 87.76 trillion rupiah last year to 195.76 trillion rupiah, according to the finance ministry. International investors poured another 2.99 trillion rupiah in the first week of January, official data showed.
“The spirit is to give more opportunities to domestic investors given that the liquidity in the U.S. dollar is quite big because of the heavy capital inflows,” Waluyanto said.
Standard & Poor’s raised the country’s rating in March to BB, while Moody’s Investors Service on Dec. 1 placed its Ba2 ranking on review for a possible upgrade, citing an improving economy and state finances. Both rank Indonesia two levels below investment grade. Fitch Ratings assessed Indonesia at BB+, the highest non-investment ranking.
President Susilo Bambang Yudhoyono said in his annual state-of-the-nation address on Aug. 16 that he is seeking to expand the Indonesia economy by as much as 7.7 percent and create 10.7 million jobs by the end of his second term in 2014.