The Republic of Indonesia has long been a prominent issuer in the dollar bond market, selling at least one deal every year since 2004.
But the sovereign has begun to expand its issuance strategy, and for the last two years has sold euro and Japanese yen deals as well.
It plans to repeat that formula this year, selling deals in all G3 currencies, a government funding official told FinanceAsia. And since it has no plans to swap its euro or yen proceeds, it can go ahead without worrying too much about volatility in the swap market.
These euro and yen deals will supplement Indonesia’s long run of dollar bond issuance, allowing the sovereign to diversify both its investors and its maturities. Japanese yen bonds tend to be shorter than dollar issues while euro deals, because they price against Euribor rather than government bonds, offer a greater range of maturites.
The country has around Rp560 trillion ($41.9 billion) of long-term debt financing to do this year, although the bulk of that will come from the domestic market, the official said. This will be split between around Rp330 trillion of deficit financing, and Rp230 trillion of maturing debt.
The government plans a further Rp55 trillion of non-debt financing, and an expansion of its T-bill programme that will push overall gross issuance to around Rp735 trillion in 2017, the official said. Indonesia plans 24 auctions this year for both its conventional and Islamic bill programmes, he added.
Offshore financing will represent a maximum of 20% of overall government funding this year, said the official — but he stressed it could be even lower.
The funding official talked to FinanceAsia about his plans just days after the country dropped JP Morgan as one of its primary dealers, in response to a research report by the bank that government officials deemed negative.
Loto Srianita Ginting, Indonesia’s director of government securities, could not be reached to elaborate on the plan, and the funding official declined to comment. But Sri Mulyani Indrawati, the country’s finance minister, told reporters last week that the report was not “credible”.
The government is now considering wider guidelines on research issues by its primary dealers, according to press reports, although government officials did not respond to requests for comment on the plan by the time this article was published. JP Morgan, meanwhile, tried to downplay the tussle.
“Our business in Indonesia continues to operate as usual,” said a spokesperson via email. “The impact on our clients is minimal and we continue to work with the [Ministry of Finance] to resolve this matter.”
Indonesia’s most recent dollar bond was a $3.5 billion deal in early December. That deal pre-funded part of its financing need for this year, giving the sovereign room to keep its dollar bond issuance smaller this year — or potentially pre-fund its 2018 needs.
Before that year-end deal, Indonesia had sold a $2.5 billion dollar deal, a ¥100 billion Samurai bond, and a €3 billion euro issue. These bonds were all dual-tranche issues, offering investors a choice of two maturities.
The sovereign went into 2017 on the back of some good news. Fitch revised Indonesia’s BBB- rating to positive on December 21, complementing savvy management by government and central bank officials and pointing to the success of a recent structural reform effort.
But the agency did warn about Indonesia’s vulnerability to sources of volatility outside the country — in large part because of its long history of foreign currency borrowing.
Moody’s and Standard & Poor’s rate Indonesia at Baa3 and BB+, respectively. S&P concluded a rating review in the middle of last year — a week before Indonesia sold its most recent euro bond — and announced that it was not upgrading the country.
Indonesia’s five-year credit default swap rate was quoted at 153.3bp on Monday afternoon, almost 4bp wider on the day.