JPMorgan Leads Surge in Indonesia-Tied Note Sales to 3-Year High

Issuance of structured notes tied to Indonesia’s sovereign debt surged to the most in three years, led by JPMorgan Chase & Co., as investors seek to capitalize on the second-highest yields among major Asian economies.

Sales of notes linked to Indonesian government bonds jumped to the equivalent of $519.7 million this year through May 14, 89 percent higher than the same period of 2012, according to data compiled by Bloomberg. The volume is the highest since 2010 and 90 percent of the products were issued by JPMorgan, which rose to No. 1 after being ranked eighth last year, the data show.

Overseas investors pumped a net 18 trillion rupiah ($1.8 billion) into local-currency sovereign notes in April, pushing holdings to a record 299 trillion rupiah, according to the finance ministry data. The country’s 10-year bonds yielded 5.55 percent yesterday, the highest behind Indian debt among 14 Asia-Pacific countries tracked by Bloomberg.

For foreign investors, Indonesia “offers high yield, but the risk is controllable,” said Nurul Eti Nurbaeti, head of treasury research at PT Bank Negara Indonesia in Jakarta.

JPMorgan on May 6 issued the largest notes tied to Indonesia this year in a 1.93 trillion rupiah offering. The 20-year securities, issued at a 4.4 percent premium, both pay a 6.625 percent annual coupon and are redeemed in U.S. dollars. The U.S. currency gained against the rupiah for two consecutive years through 2012.

Long-Term Investments

Polly Leung, a spokeswoman at JPMorgan in Hong Kong, declined to comment on the notes. Standard Chartered Plc and Deutsche Bank AG have also issued the securities this year, according to Bloomberg data.

More than two-thirds of the products sold this year have maturities of 10 years or longer, Bloomberg data show. Such tenors are popular among pension funds and other foreign institutional buyers, as they tend to seek long-term investments, Nurbaeti said.

Indonesia on May 14 kept interest rates unchanged for a 15th consecutive time as predicted. The central bank won’t resist raising rates if needed, Assistant Governor Hendar said May 8.

Standard & Poor’s cut its rating outlook on Indonesia’s debt to stable from positive this month, citing slow progress in improving infrastructure, regulatory uncertainty and bureaucratic obstacles. The agency ranks the country at its highest junk level, while Fitch Ratings Ltd. and Moody’s Investors Service restored Indonesia to investment grades in December 2011 and January 2012.

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