Thursday, 26 February 2009

Indonesia Launches Bond: $3 Billion, Two Tranches (Five-, Ten-Year); Yields Per Tranche at 10.5%, 11.75%

Here is the data on a bond sale just launched by the Republic of Indonesia:

Issuer: Republic of Indonesia
Ratings: Ba3/BB-/BB
Format: Reg S/144A

Total Size: US$ 3 Billion

Tranche Size: $ 1 Billion | $ 2 Billion

Coupon: Fixed Rate | Fixed Rate

Maturity : Long 5y - May 2014 | 10y - March 2019

Launched Yield: 10.50% | 11.75%

Leads: Barclays Capital Plc. / UBS AG
Settlement: March 4, 2009


The Global Medium-Term Note programme of bond sales was launched by Indonesia on Jan. 29 for up to $4 billion in bond issuances. In recent weeks, especially in the November-through-January period, the decline in international reserves in Southeast Asia has been acute. In emerging market Asia (ex-China) the drop in reserves has been equivalent to 2.2 percent of gross domestic product, twice as much the decline posted in Latin America and Eastern Europe.

In the case of Indonesia, portfolio outflows were the equivalent of 5 percent of GDP in the fourth quarter. Consequently the price of five-year credit default swaps (CDS) on government dollar bonds rose by about 300 basis points in the same period.
In light of the tumble in exports and the heavy foreign debt repayment schedule, more emerging market countries are being forced to tap the international bond markets in spite of higher borrowing costs. As we saw in the past two months, Mexico sold $1.5 billion of five-year debt (a weird transaction, given the fact that Mexico and state company Pemex have flooded the market this year with a total $6 billion in issuances.)

Basically, my point here is that Mexico's decision provided us with some clues about the situation of the sovereign debt asset class. That there is still appetite for short-duration investment-grade paper seems to be one of the main conclusions. The maturities for the Indonesian bonds are five- and ten-years. And borrowing costs are quite high, though -- between 10.5 percent and almost 12 percent! Indonesia explored the MTN market because it was either ready to pay high borrowing costs for the money or it feared its external account and debt positions may put reserves further under pressure. Summarising, Indonesia needed the money.

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