HONG KONG, Jan 8 (IFR) - The Republic of Indonesia stuck to
its strategy of coming to the bond markets early in 2014,
pricing a US$4bn two-part offering that might fulfil its 2014 US
dollar funding requirements.
Indonesia, rated Baa3/BB+/BBB-, sought to hit the market
early as officials with the sovereign expect borrowing costs to
rise later this year.
Tuesday's US$4bn dual tranche transaction was Indonesia's
largest offshore bond issue and the biggest by an Asian
sovereign in at least 10-years, according to the lead managers.
The US$2bn 10-year tranche, with a 5.875% coupon, priced at
99.441 to yield 5.95%, tighter than initial price talk of 6.20%.
The US$2bn 30-year tranche, with a 6.75% coupon, priced at
98.734 to yield 6.85%, tighter than initial price talk of about
7.1%. Both bonds traded around 100.75 today thanks to follow on
"They got 80% or 90% of their (offshore) funding needs in
one go. They got a lot of flexibility out of it," one lead
Indonesia will need to raise Rp360trn (US$29bn) through
government bonds in 2014, Robert Pakpahan, director general of
the debt management office told IFR in an interview late last
year. The sovereign expected to raise 20% of this (US$5.8bn)
offshore, Pakpahan added.
The chances of Indonesia returning to the offshore dollar
bond market are slim given that Indonesia is also planning to
issue euro-denominated bonds as well as a Samurai bond. However,
bankers at the lead managers, Citigroup, Bank of America Merrill
Lynch and Deutsche Bank, had no comment on Indonesia's dollar
This week's dollar deal size proved to be popular. The size
was increased to US$4bn from a planned US$3bn given US$18bn in
orders from investors for the combined tranches.
Still, bankers had to provide a premium for investors given
the transaction's size and that it was the first time the
sovereign sold such long bonds since its currency came under
attack amid concerns about the country's current account last
year. The Indonesian rupiah has depreciated 20% since May 1 2013
and the country had burned through more than US$10bn in reserves
At the same time, the price of Indonesia's outstanding 2043
bonds have dropped by almost 24.00 as the yield on the 30-year
Treasury spiked 100bp and spreads for bonds at Indonesia's long
end of the curve widened by more than 100bp over Treasuries.
It was therefore no surprise that Indonesia, with its huge
borrowing needs, would need to pay a concession even though Sri
Lanka, a sub-investment grade issuer, got away pricing tight to
its own curve for its US$1bn five-year bond on Monday. Sri Lanka
benefited from its rarity in international debt markets.
Indonesia's outstanding 2043 bonds were bid on Monday at
76.75 to yield 6.39%. The sovereign's 2023 bonds issued last
October were bid at 97.50 to yield 5.7% at Monday's close.
Adjusting for the Treasury curve would provide fair value at
around 5.85% for a new 10-year. The new 10-year was priced
slightly wider at 5.95%.
Bankers close to the deal said the issuer ended up paying a
new issue concession of 10-15bp for the 10-year and 5bp-10bp on
the 30-year bonds.
US investors flocked to the offering in droves, buying more
than 60% of each tranche.
The 10-year bond attracted more than US$10bn in orders from
448 accounts, with US demand accounting for 66% of the deal.
Investors from Asia and Europe bought another 17% each. The
30-year tranche pulled in more than US$7.5bn in orders from 335
accounts, driven again by US investors with 70% of the orders.
Investors from Asia bought 14% and those from Europe bought 16%.
Real money investors piled into the deal. Fund and asset
managers bought 77% each of the two tranches. Banks bought 9%
and 5% of the 10-year and 30-year tranches, respectively, while
insurance and pension funds bought 12% and 17% of the respective
portions. Private banks bought 2% and 1%, respectively.
(Reporting By Neha D'Silva, editing by Abby Schultz)