The Indonesian sovereign deal, led by Barclays Capital, HSBC and Lehman Brothers, totalled $2 billion and included a $1 billion 10-year tranche and a $1 billion 30-year tranche priced to yield 6.95% and 7.75% respectively. The transaction, rated Ba3/BB-/BB-, attracted a total demand of $3.2 billion, split evenly across both tranches. Ninety-five accounts participated in the 10-year tranche, with 10% selling to banks, 68% to fund managers, 5% to central banks, 13% to insurance and pension funds, and 4% to retail. In terms of geographic split, 47% sold to the US, 24% to Asia and 29% to Europe.
A further 92 accounts bought the 30-year bonds, with 9% selling to banks, 80% to fund managers, 4% to insurance and pension funds, and 7% to retail. US accounts bought 52% of this tranche, while 10% was allocated to Asia, and 38% to Europe.
Many syndicate bankers were pleased to see the deal price and perform, with the 2018s and 2038s trading up to par and par-and-three-quarters towards the end of Friday.
The deal came after Mexico, Turkey and Columbia all successfully issued deals early last week, but some argue that IndonesiaÆs pricing level was disappointing in comparison to the levels that these sovereigns achieved. Indonesia priced at a concession on the long end of between 30bp and 40bp to its secondaries, according to several sources (and of 26bp for the 10-year), compared to between 5bp and 20bp for the other deals.
However, a banker not involved in the deal, says: ôYes, the deal did come cheap compared to other sovereigns but this is a market where we have to recognise that if a deal prices then it is a good deal. Furthermore, the bondsÆ secondary performance tells me that the transaction priced at the level that was needed to get an Indonesia deal of this size through the gates.ö
ôAlso, our traders say there havenÆt been any loose bonds, meaning they were placed in pretty safe hands,ö he adds. The sovereign then, should be pleased.
In terms of the broader market, one banker comments: ôIt would have been better for the market generally had Indonesia priced a smaller deal, since the yield offered on the bonds caused a sell-off in Philippines and other high-yield corporate paper.ö
Indeed, on Thursday when a pricing whisper was announced, a trader said: ôThe bonds are coming very cheap, although this is probably required for the size the sovereign is trying to pull off. But itÆs so cheap that the whisper released today has re-priced the secondary market lower.ö By Friday, the Philippines had reportedly widened by 30bp following the deal.
Still, Indonesia met its objectives, despite doubts voiced by some commentators in the market regarding the unusual make-up of the troika of bookrunners mandated on the deal. How the bonds perform in the next week will determine whether Indonesia has opened the market for high-yield corporates looking to raise debt.
KDB also finally brought its $1 billion transaction to market on Friday morning, which will please other Korean issuers that have been waiting to move ahead with their own transactions. Government approval for accessing the international bond markets is only given to one borrower at a time from the same sector.
KDB reportedly delayed pricing a transaction in October on the heels of its archrival KoreaÆs Export-Import Bank (Kexim), when the premium (likely to have been 1bp-2bp back from Kexim) was too onerous. Yesterday it priced its transaction, rated Aa3/A/A+, at a spread of 218bp over US Treasuries, versus KeximÆs $1.5 billion deal in October which priced at 116bp over Treasuries, and at a concession of 30-35bp over Kexim's 2012 bonds.
But the transaction, led by Citi, Depfa Bank, Deutsche Bank, Goldman Sachs and HSBC, reflects the levels now required for this market. ôThe difference in pricing is a primary indicator of how different the market is today even compared to the end of last year,ö says a source. Bankers not involved in the deal were pleased to see it both price and perform well in the secondary market, acknowledging not only difficult market conditions, but also headline news leaked last week regarding the governmentÆs plan to privatise the bank.
Although the plan is not finalised, a report by Standard and PoorÆs released last week stated that should it result in a change in the public policy role of the bank, or diminished support from the government, then KDBÆs ratings will be affected.
Investors were clearly reassured by the put option implemented in the transaction. This will be triggered in the event of a downgrade, as long as it is directly linked to a divestment of the government's shareholding in KDB. An amendment to the KDB Act, which states that the government must shore-up KDBÆs capital as a result of any shortfalls, would also be valid for investors to put their bonds back at par.
The transaction attracted $3.3 billion worth of orders and was eventually placed with 128 accounts. Twenty-two per cent of the bonds sold to Asia, 20% to Europe and 58% to the US. In terms of investor breakdown, 26% sold to banks, 38% to fund managers, 6% to pension funds, 6% to central banks, 23% to insurance companies, and 1% to other.
"The deal was announced in the morning, and priced at night, so executed very quickly to minimise risk. They probably had large anchor orders before they announced anything. It's textbook style of how deals are getting done in the US, and that's the only market that is doing any deals at the moment," says a banker.
"As expected and like all deals recently, the transaction hinged on US accounts, which also means they probably achieved a good real-money bid," he adds.
Depfa, meanwhile, is rumoured to have intended to purchase 7.5% of the bonds.
In response to both the Indonesia and KDB deals, a banker said: ôAnyone who is walking away with money in this market deserves recognition. Both these deals are a good sign, but they donÆt mean that we are out of the woods yet.ö
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