The Republic of Indonesia printed its first 10-year sukuk early Thursday morning, raising $1 billion as it took advantage of demand for long-dated bonds.
Sukuk investors typically favour short tenors in the three- to five-year range, and Indonesia is one of only a handful of borrowers in the world to be able to sell longer-dated paper. It isn’t the first in Asia, however — Malaysia issued a 10-year sukuk in 2011, as has Maybank in the past.
Anchored by Middle Eastern accounts, the leads went out with initial guidance at the 3.5% area on Wednesday. At this point, one investor described the pricing as “aggressive”. Despite this, Indonesia was able to print its deal at 3.3%, at the tight end of the final guidance of 3.3% to 3.4%.
The tight level at which the bond priced is evidence of how far the sovereign has come. “Five years ago, Indonesia used to price its bonds at 11%, but now it is coming at 3.3%,” said one source. This is a reflection of the country’s improving fundamentals — with the sovereign now elevated to investment-grade status by Moody’s and Fitch.
The 3.3% coupon was the lowest Indonesia achieved for a dollar bond, and came lower than the 3.75% coupon it achieved for its previous 10-year transaction. The sukuk 2018s were trading at 3% and the new bonds came 30bp wide of that, compared to the 60bp spread between similar US Treasuries.
Despite weaker markets, the bonds straddled par and then traded slightly lower at 99.875, but otherwise held relatively steady. The deal attracted $5.3 billion of demand from 250 investors. Middle Eastern and Islamic investors were allocated 30%, Indonesian investors 20%, other Asian investors 15%, European 15% and US investors 12%. Fund managers were allocated 40%, banks 35%, central banks and sovereign wealth funds 17%, private banks 5% and insurers 3%.
The last time Indonesia tapped the sukuk market was in November 2011, when it issued a $1 billion seven-year deal arranged by Citi, HSBC and Standard Chartered. It retained the latter two bookrunners for its latest deal but replaced Citi with Deutsche Bank.
Indonesia has waded into different currencies this year, including issuing a yen-denominated bond and dollar debt earlier this year and has been one of the most active borrowers in the region alongside Hutchison Whampoa, Kexim, Sinopec and Korea Development Bank.