Friday, 13 February 2009

Indonesia on the Road: Road Show Meetings Spark Interest on Medium-Term, Benchmark Size Issuance

According to a note released by the government of Indonesia that one reader kindly sent to us this morning, the country unveiled its intention to set up a benchmark-sized dollar bond issue under the Global Medium-Term Note Programme (GMTN) upon the completion of an update process for investors and parliamentary red-tape. Barclays Capital and UBS AG are managing the sale.

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 will be forced to tap the international bond markets in spite of higher borrowing costs. As we saw Wednesday, 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 ... anyways, that is a different story.) Basically, my point here is that Mexico's decision provided a series of observations 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. Indonesia might be exploring the MTN market because it is either ready to pay high borrowing costs for the money, or it fears its external account and debt positions may put reserves further under pressure. Summarising, it does need the money.

Indonesian government officials met with as many as 120 international investors that included asset managers, bankers and other investors in London, New York, Boston, San Francisco, Los Angeles, Singapore and Hong Kong, according to the note. A bit of colour always does good to these postings. The GMTN Program was established on Jan. 29 (we wrote a short posting about it, so go back to the archive if you are interested to find out details on the programme or, I will make it easier for you, click here) and streamlines future international bond issuance by the country. Investors were addressed on the impact of the global credit crisis on Indonesia, current policy responses, the proposed fiscal stimulus and planned budget financing.

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