Indonesia Offers Dollar Bonds at Highest Yield Since 2010
Indonesia is marketing its second dollar-denominated bond this year at the highest yield since 2010 after an April issue handed investors a 12 percent loss.
The price guidance for the 10-year notes is 5.45 percent, Robert Pakpahan, director general at the debt management office, said in Jakarta today. That would be the highest for the tenor since 6 percent was paid in January 2010, data compiled by Bloomberg show. The decision was taken to sell now because of uncertainty about what market conditions will be like later in 2013, Pakpahan said.
Emerging-market sovereign bonds have tumbled since the Federal Reserve signaled in May plans to scale back $85 billion a month of debt purchases that drove borrowing costs to record lows. The indicative yield for Indonesia’s current offering is 2.82 percentage points more than for similar-maturity Treasuries, compared with a 1.75 percentage point premium at the April sale, at which the debt was priced to yield 3.5 percent, Indonesia’s lowest-ever for a non-Islamic offering.
“My guess is that there would be quite good demand because the yield offered relative to Treasuries is very high,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “Bond yields are going higher everywhere in the region, and even if Indonesia has strong fundamentals, no one is immune from outflows.”
Indonesian dollar bonds have declined 12 percent this year, the most among 11 Asian developing economies tracked by HSBC Holdings Plc indexes. The yield on the notes sold in April rose 26 basis points, or 0.26 percentage point, to 5.15 percent as of 3:44 p.m. in Jakarta, according to prices compiled by Bloomberg.
Standard & Poor’s rates the current offering at BB+, one step below investment grade, due to the nation’s “weak policy environment, and high and rising external leverage,” it said in a statement today. Moody’s Investors Service and Fitch Ratings have given Indonesia the lowest investment grade.
The average yield on emerging-market dollar notes issued by governments touched 6.17 percent on June 24, the highest since October 2011, and ended yesterday at 5.84 percent, according to the JPMorgan Emerging Markets Bond Index. It is still 133 basis points higher than at the end of April.
“We see that conditions in the global bond market have improved and are stable,” Robert Pakpahan, director general at the debt management office in Jakarta, said in a mobile-phone text message today.
The country sold both 10- and 30-year dollar bonds in April. This time, it is only selling 10-year securities to tap better demand for that tenor, Pakpahan said today.
Southeast Asia’s largest economy last month increased its total 2013 net debt sales target to 231.8 trillion rupiah ($23 billion) from 180.4 trillion rupiah. The country is forecasting a budget deficit of 2.4 percent of gross domestic product this year, which would be the most in data compiled by Bloomberg going back to 2004.
Indonesia plans to raise about 18 percent to 20 percent of its debt target in U.S. currency, the debt management office’s Pakpahan said in a July 5 interview. That translates to around $3.6 billion more of dollar sales this year, he said. The country will sell global bonds and sukuk in the second half of 2013, with the non-Islamic sale likely to be the larger of the two, Pakpahan said. A $500 million onshore offer of dollar-denominated debt is also planned for October.
The government hired Standard Chartered Plc, JPMorgan Chase & Co. and Barclays Plc to manage its dollar bond sale, Pakpahan said. The nation has also appointed PT Bahana Securities, PT Danareksa Sekuritas and PT Mandiri Sekuritas as managers, the person said.
Bank Indonesia is forecast to increase borrowing costs tomorrow as it seeks to head off an expected surge in consumer prices after it raised the price of subsidized fuel last month. The central bank will lift its reference rate to 6.25 percent from 6 percent, according to 11 of 15 analysts surveyed by Bloomberg. Two predict no change, while two forecast a 50 basis point boost. The government is forecasting full-year inflation of 7.2 percent, compared with 5.9 percent in June.
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