Indonesia Plans Second Dollar Bond Sale in 2015 Preempting Fed

  • First time country will sell debt for following year's budget
  • Government has chosen underwriters for the planned offer

Indonesia plans to sell dollar bonds as soon as this month as it seeks to get off to an early start raising funds for the 2016 budget and preempt a possible Federal Reserve rate increase.

Underwriters have been selected for the sale and the offer may happen in November, said Scenaider Siahaan, a director at the Finance Ministry’s budget financing and risk-management office, declining to name the arrangers. Indonesia’s not alone in looking to tap the global debt market before the Fed raises borrowing costs, with the Philippines saying last month that it might sell dollar notes for the second time in 2015.

“This global bond sale will be done as a form of prefunding for early 2016,” Siahaan said in a mobile-phone text message on Thursday. “We are still calculating the target size and waiting on estimates for the accumulated budget surplus from this year.”

President Joko Widodo has revised rules and offered incentives to speed up sluggish state spending, which has contributed to economic growth languishing below 5 percent for the last three quarters. Indonesia normally sells dollar bonds in January and this would be the first time it has sold debt to fund the following year’s budget. There’s a 66 percent chance the U.S. central bank will raise interest rates on Dec. 16, futures contracts show.

Build Reserves

Indonesia last sold dollar notes in January at 4.2 percent. Those securities due January 2025 reversed gains after the announcement, pushing the yield up four basis points to 4.53 percent as of 3:16 p.m. in Jakarta, data compiled by Bloomberg show. The yield rose as high as 5.05 percent in late September.

“The dollar yields have returned to reasonable levels despite an eventful year,” said Ikhwani Fauzana, head of rates trading at PT Bank Negara Indonesia in Jakarta. Another global sale this year would be “in line with the government and central bank’s tendency to pull dollars onshore to build up reserves and stabilize the rupiah,” she said.

The Indonesian currency has dropped 10 percent this year in the second-worst performance in Asia. The country’s foreign-exchange reserves have fallen for eight months through October to $100.7 billion, the least since January 2014.

The Philippines will be “opportunistic” and there “may be some room” for another dollar debt sale this year, Treasurer Roberto Tan said in an Oct. 22 interview. Vietnamese Finance Minister Dinh Tien Dung said this week that the country was reconsidering a $3 billion global bond offer on concern that borrowing costs will increase further as the Fed prepares to tighten, and was opting to increase domestic sales instead.

Sales Target

Indonesia’s gross bond issuance target will rise to 511 trillion rupiah ($37 billion) in 2016, from 481 trillion rupiah this year, Robert Pakpahan, director-general at the budget financing office, said in a Nov. 12 interview. If the country goes ahead with another dollar sale this year, it will count in next year’s target.

Foreign-currency sales overseas will make up 30 percent of total issuance next year, up from 24 percent in 2015, Pakpahan said. While Indonesia wants to cut the proportion of overseas debt it sells over time, an increase next year will insulate it from potential increases in local-currency yields as the U.S. raises rates and avoid “crowding out” domestic borrowers, he said.

Indonesia plans to sell bonds denominated in euro and yen and is also considering offering its first yuan-denominated notes, Pakpahan said, although dollar notes will make up the biggest proportion of foreign sales.

Indonesia’s government has hired Bank of America Merrill Lynch, CIMB Group Holdings Ltd., Citigroup Inc. and HSBC Holdings Plc for the dollar debt sale this year, according to the IFR.

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