* Official says markets remain confident in the sovereign
* Continued support should allow for additional issuance
* Indonesia plans first global debt swap this year
By Neha D'Silva
May 3 (IFR) - Indonesia's director-general of debt
management Robert Pakpahan is not worried that rating agency
Standard & Poor's has moved the country one step further away
from investment grade by changing its outlook on the republic's
BB+ rating to stable from positive on Thursday.
With Indonesia still enjoying investment-grade status from
Moody's and Fitch, Pakpahan said he would continue with a busy
schedule of international bond issuance, including liability
management exercises and a maybe even a dollar bond issued
"S&P just revised the outlook. I checked the implications on
the bond market after it closed. There was no negative impact at
all," Pakpahan said in an exclusive interview with IFR during
the Asian Development Bank meetings in India.
S&P's move came on the same day the rating agency gave the
second investment-grade rating to the Republic of the
Philippines. Indonesia achieved the coveted two investment-grade
ratings before its neighbour. Fitch awarded it a BBB- in
December 2011 and Moody's gave it a Baa3 rating in January last
However, the Philippines sovereign bonds have traded tight
to Indonesia's for a while now and the differential between them
widened on Thursday as bonds from the Philippines rallied, while
those from Indonesia stalled.
The Philippines bonds due 2037 gained US$1.5 in price terms
after the sovereign was upgraded to BBB- on Thursday afternoon
Asian time and were last quoted at 122.25/122.75. Meanwhile, one
trader said that Indonesia's recently issued bonds due 2043 were
up by about US$1 on Thursday but ended the day only 50ct higher
in price terms as some investors sold after S&P's outlook
The recently issued 2043s of Indonesia were unchanged on
Friday at 103.85/104.85, having been sold initially on April 8
at a price of 98.012, while the Philippines 2037s were still on
Indonesia's 30-year bonds are still up almost US$6 since
printing, which Pakpahan said showed that investors still viewed
"It gives us confidence that global investors still believe
in us and see that the Indonesian economy has been consistently
growing, around 6%, and, in general, that fiscal policy and
monetary policy sustainability is there. Investors are willing
to even buy our 30-year bonds so that encourages us to maintain
our policy so that investors' confidence will be rewarded,"
That kind of confidence will have to be nurtured, as
Indonesia still needs plenty of support from foreign investors.
Pakpahan said the sovereign was forecast to end the year with a
Rs153trn (US$15.7bn) deficit, which would have to be funded
mostly through debt. "Because there are some securities that
need to be refinanced, we need to issue in gross terms around
Rs280trn," he said.
To be sure, not all of that will come from international
markets. "For 85% of that (amount) we will rely on domestic
issuance and for 15% we will rely on global bond issuance, both
in conventional global bonds in dollars and global sukuks in US
dollars," Pakpahan said. That means that the sovereign will fund
some US$4.5bn internationally this year.
Two-thirds of that was raised in a two-tranche bond on April
7. The sovereign sold a US$1.5bn 10-year bond at a price of
98.953 and a yield of 3.5%, on a 3.375% coupon. A US$1.5bn
30-year tranche was priced at 98.012 with a 4.75% yield on a
Earlier this year, Indonesian debt management officials said
they planned to issue US$1bn in dollar-denominated Sukuks in
2013. "In the second semester we plan to issue the global
sukuk," Pakpahan confirmed.
Pakpahan also said that Indonesia might follow the
Philippines' lead and issue dollar-denominated bonds onshore to
local investors. The Philippines did a US$500m deal like this in
November last year.
"One of the new things is we will issue onshore US
dollar-denominated bonds for domestic investors...which we are
planning in the second semester," Pakpahan said. "The purpose is
to provide instruments for domestic investors who have savings
or outstanding stock of US dollars so they can channel it to our
sovereign bonds," he said.
"Tenor depends on the appetite. We haven't finalised it yet.
It could be five or 10 years or even more than 10 years."
For all his confidence, Pakpahan did acknowledge some of S&P's
concerns. "I understand their reasons, especially regarding the
fuel subsidy," he said.
In its release on the rating, S&P said: "The political
considerations related to next year's parliamentary and
presidential elections appear to increasingly shape policy
formulation ()As an illustration, the government has been
reluctant to deal decisively with the fuel subsidy problem, even
as structural shifts in the domestic oil market have increased
the vulnerability to fiscal and balance-of-payment outcomes."
Moreover, Pakpahan seems to have taken to heart the lesson
that the Philippines' upgrade offered. The sovereign managed to
jump from BB- to BBB- by S&P in eight years partly due to an
aggressive liability management program. Pakpahan said the time
had now also come for Indonesia to start cancelling high coupon
bonds and replacing them with cheaper ones.
"Liability management is one programme that we started to
exercise and we are planning to execute it sometime this year,"
Pakpahan said. "The methodology and the precise mechanism and
implementation is not final yet, but we are in the process of
finalising all the procedures and capacity-building and know-how
to do the liability management."
He said that the sovereign had already started debt-switch
programmes locally to lengthen the average maturity of its debt.
"We have been doing a debt switch for domestic bonds, but this
is the first time (we will do it) for global bonds," he said.
(Reporting By Neha D'Silva; Editing by Christopher Langner and