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Pertamina Plans Dollar Bond as Yields Fall to Three-Month Low

May 6 (Bloomberg) -- PT Pertamina Persero is considering a sale of U.S. dollar-denominated bonds as borrowing costs in the currency fall to the lowest in three months.

Indonesia’s state-owned oil company hired Barclays Plc, Citigroup Inc. and Royal Bank of Scotland Group Plc to arrange the possible offering, according to a person familiar with the matter, who asked not to be identified because the terms aren’t set. Golden Eagle Retail Group Ltd., a Chinese department store operator, may also sell U.S. currency notes after meeting investors from tomorrow, a separate person said.

Asian issuers are paying the least to sell dollar debt since January, according to JPMorgan Chase & Co. indexes, as investors plow money into fixed-income products. Bond funds attracted a record $10.3 billion in the week to May 1, with inflows into high-yield debt reaching a 31-week high, according to data from EPFR Global.

“Yields have completely compressed over the past 12 months so it’s one of the best times to try to raise money for any company,” said Brayan Lai, a Singapore-based analyst in emerging-market credit trading at Jefferies Group LLC. “There’s not so much in the way of indigestion just yet and there’s still cash to be put to work.”

The average yield on dollar debt from Asian borrowers fell to 4.16 percent last week, the lowest since Jan. 29, according to JPMorgan indexes. Yields have fallen 62 basis points in the past year, the data show.

Sale Plans

Pertamina plans to meet investors from May 8 to discuss a bond sale after setting up a $5 billion medium-term note program, the person with knowledge of the details said.

The company will use some of the proceeds from its sale for capital expenditure as it looks to increase production, according to an e-mailed statement from Fitch Ratings, which assigned the notes a BBB- expected rating. Pertamina last sold bonds in April 2012, when it raised $2.5 billion from a sale of 10- and 30-year securities, data compiled by Bloomberg show.

Golden Eagle, which is based in Nanjing, is scheduled to meet investors in Hong Kong tomorrow, in Singapore on May 8, London May 9, and Boston and New York on May 10 and May 13 respectively, the person said.

The company, which has the equivalent of $345 million of loans due in 2015, plans to use the proceeds to refinance short-term bank loans and for capital expenditure and other general corporate purposes, it said in a statement to the Hong Kong stock exchange today.

The planned notes will be rated Baa3, the lowest investment grade, by Moody’s Investors Service, the ratings company said in an e-mailed statement today. Fitch is giving the notes an equivalent BBB- rating, as will Standard & Poor’s, according to separate e-mails.

Default Swaps

The cost of insuring Asian corporate and sovereign bonds against non-payment is on track to fall to the lowest level in more than seven weeks, according to credit-default swap traders.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 102.5 basis points as of 8:40 a.m. in Singapore, Westpac Banking Corp. prices show. The gauge is set for the lowest close since March 15, according to data provider CMA.

The Markit iTraxx Australia index declined 4 basis points to 97 as of 10:19 a.m. in Sydney, according to National Australia Bank Ltd. The benchmark is heading for the lowest close since November 2010, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Markets in Japan are closed for a national holiday. The Markit iTraxx Japan index dropped 3.6 basis points to 81.9 on May 3, the lowest since May 2008, according to CMA.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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