Indonesia issues Asia's biggest sovereign bond of 2016

Braving the post-Trump chill over the bond markets, the Jakarta government prepares for 2017 and likely Fed rate hike by raising $3.5 billion in a three-tranche offering.

With a US rate hike looming, the Republic of Indonesia made a head start on its 2017 funding needs with a $3.5 billion bond sale that is the largest this year from an Asian sovereign issuer.

The timing of the Republic of Indonesia's deal – the first by a sovereign anywhere since Donald Trump's shock victory in the  November 8 US poll – was key. It tapped markets on Thursday, a day ahead of the US jobs report for November and ahead of a potentially destabilising constitutional referendum in Italy this weekend.

One syndicate banker said more countries could follow Indonesia by making an early start on fundraising. That could include the Republic of the Philippines and Malaysia which, like Indonesia, usually issue debt at the start of each year.

The Baa3/BBB-/BBB+ -rated  country sold $750 million of dollar denominated bonds due in January 2022 with a yield of 3.75%; a 10-year $1.25 billion note at 4.4%; and a $1.5 billion January 2047 bond at 5.3%. It paid a new-issue premium of 15 to 20bp across the three tranches.

This is the first time any sovereign borrower has issued dollar notes with three different maturities in a single deal.

All three tranches were priced well below initial guidance. The five-year bond was priced 25bp tighter than its guidance in the 4% area, while the 10-year note and the 30-year note were both 35bp narrower than their marketing range. The 2027 and 2047 bonds were pitched at about 4.75% and 5.7%, respectively.

“This is part of issuer's pre-funding exercise for its 2017 funding target," the syndicate banker said, dubbing the new deal "a market reopening trade" after global bond markets suffered a rout in the aftermath of Trump's victory.

"The issuer talks to global investors on a regular basis, so the new deal gets done in a pretty swift fashion," the banker added.

According to figures from Dealogic, the new deal surpassed the country's $3.406 billion bond in June as the largest sovereign bond this year. Taking the latest deal into account, the country had raised more than $10 billion of debt this year.

It is the second time in as many years Indonesia has pre-funded with a bond deal in December.  Robert Pakpahan, director general of budget financing and risk management, told FinanceAsia in a March interview that the early deal "worked well".

The final order book for the five-year captured more than $5.2 billion of demand from 298 accounts. By geography, the US took 48%, Europe, Middle East and Africa 27%, Asia ex-Indonesia 22% and Indonesia had the remaining 3%. By investor type, fund managers/ asset managers took 74%, banks 12%, private banks/others 9%. The remaining 5% went to sovereign wealth funds.

For the 10-year note, the final order book reached $3.5 billion from 265 accounts. By geography, US took 38%, EMEA 18%, Asia ex Indonesia 26% and Indonesia 18%. By investor type, fund managers/asset managers 53%, banks 22%, insurers/pension funds took 18%, private banks 2%, sovereign wealth 5%.

Insurance firms and pension money flocked into the long-dated bond. The 30-year bond captured $3.3 billion of orders from 190 accounts. By geography, the US took 29%, EMEA 12%, Asia ex-Indonesia 58% and Indonesia 1%. By investor type, fund managers/ asset managers took 27%, banks 2%, insurers/pension funds 62%, private banks 3% and sovereign wealth funds 6%.

Joint bookrunners were Bank of America Merrill Lynch, Citi, HSBC and Standard Chartered.

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