April 10 Indonesian companies lining up to sell
at least $4 billion in bonds said on Thursday they were
unperturbed by a surprising parliamentary election that dented
the country's status as an emerging market favourite.
The southeast Asian nation's financial markets had rallied
this year on prospects of Jakarta Governor Joko Widodo, known as
"Jokowi", becoming president with a strong enough mandate to
push through long-stalled reforms.
Foreign inflows into Indonesian government bonds hit $3.9
billion in the year to date, compared with $4.7 billion for all
of 2013. Since May 2013, the country has recorded only three
months when there was more foreign money leaving than arriving.
The premium that investors demanded to hold Indonesian
10-year bonds over the benchmark 10-year U.S. Treasuries has
narrowed by 839 basis points, or 28 percent, since the end of
January as anticipation of Jokowi's candidacy boosted reform
But early returns from Wednesday's parliamentary election
showed that Jokowi's Indonesian Democratic Party-Struggle
(PDI-P) will have to cut a deal with other parties in order to
nominate its hugely popular candidate for president in a July 9
"There will be a tempering of reform expectations for the
moment from the investors' perspective," said Philip McNicholas,
BNP Paribas Hong Kong based ASEAN analyst.
The notion that Jokowi will need to form a coalition to win
power does not necessarily mean that his government would have
to compromise on reform, according to some executives eyeing
Indonesian state-owned gas utility firm PT Perusahaan Gas
Negara, which plans to issue $1.5 billion worth of
global bonds this year mainly to fund its expansion, saw the
bright side of a coalition government.
"This is actually positive because the opposition will be
reduced and this will be good for government policies,"
Corporate Secretary Heri Yusup told Reuters. "Investors are
still likely to respond positively to Indonesia because the
election is going on safely and our economic condition is also
Other firms are also lining up issues.
State energy firm Pertamina plans to issue bonds
worth $2.5 billion to $3 billion as early as next month, two
sources with direct knowledge of the matter told Reuters.
Pertamina Director Muhammad Husein did not confirm the
amount or timetable, but said investor response to a road show
last week was "positive" and the election result was little
cause for concern.
Berau Coal Energy has picked Citigroup and
Standard Chartered for a bond issue of undetermined size.
Textile firm Sri Rejeki Isman plans to issue $300
million bonds next month, Director Iwan Lukminto said.
Property developer Lippo Karawaci, which issued
$150 million in 8-year global senior notes offering 7 percent
returns, said its order book was 6.3 times over-subscribed.
Ignatius Girendroheru, president of the Indonesian Bond
Pricing Agency, which provides bond pricing information,
attributed the heavy issuance pipeline to corporate expectation
that the rupiah currency will strengthen at the end of the year.
But he cautioned that companies have to be wary of pricing as
U.S. interest rates may rise in 2015.
The J.P. Morgan Asia Credit index for Indonesia
has returned 5.9 percent year-to-date, easily outperforming the
JACI Asia index which returned 3.3 percent.
Across Asia, Indonesia's return this year ranks third, just
behind Sri Lanka and Pakistan.
On Thursday, Indonesia's credit market marginally
underperformed the broader market, while the main stock market
index was down 3.2 percent.
While Jokowi's candidacy has drawn foreign interest,
Indonesia's strong economic growth is also appealing, luring
some investors away from more volatile emerging markets such as
Russia and Turkey.
"While the election news is a minor negative, the main
drivers of Indonesian performance remain, so the setback could
be limited," said Oscar Chow, Mitsubishi UFJ's Hong Kong-based
head of Asian credit research.
(Reporting by Umesh Desai in Hong Kong, Fathiya Dahrul in
Jakarta and Eveline Danubrata in Singapore; Editing by Simon