Indonesia saves over 160bp with $4b bond

The Southeast Asian country raises its first dual-tranche bond of the year, obtaining a $20 billion order book and pricing it flat to its secondary offerings.

The Republic of Indonesia raised a $4 billion dual-tranche bond early on Friday morning, pricing it flat to where its existing notes were trading in secondary markets.

Buoyed by the still-low rates environment and strong investor sentiment towards the emerging market, the sovereign priced its $2 billion 10- and 30-year offerings at 4.2% and 5.2% respectively, approximately 30bp tighter than their initial price guidance area, according to a source familiar with the matter.

This is substantially lower than where ROI came during the same period last year. Similar to last January, the borrower raised a $4 billion bond — also split equally into 10- and 30-year buckets. The paper priced at 5.95% and 6.85% respectively, indicating that costs have dropped substantially since last year.

“The transaction mirrors what Indonesia has done last year but the main difference is the pricing,” said a source close to the deal. “That in itself is a tremendous result and a reflection of the improving sentiment towards Indonesia and the low rates environment.”

After falling below the 2% threshold for the first time since October to 1.97% on Tuesday, 10-year US Treasury yields have rebounded slightly to 2.01% on Friday morning, according to Bloomberg data.

Both 144A/Reg S-denominated tranches received overwhelming demand, obtaining a total orderbook of over $20 billion from more than 800 accounts, said a separate source. The source added that Thursday was a good day to be in the market, with ROI smartly getting ahead of the heavy pipeline anticipated in the coming week.

“Indonesia pushed ahead and was rewarded accordingly,” said the source.

Chinese car rental company CAR and Mainland coal producer China Shenhua, for example, are currently on global investor roadshows, which are due to complete next week.

Indonesia, Asean’s biggest economy by GdP, plans about Rp450 trillion ($437 billion) of debt issuance in international and local bond markets this year, similar to 2014’s record-breaking level, Robert Pakpahan the director general of the finance ministry’s debt management office said at FinanceAsia’s biannual Borrowers’ and Investors’ Forum in October.

The ROI also has plans to frontload its bond sales denominated in US dollars, euro and yen this year ahead of the expected rate hike.

The borrower’s Baa3/BB+/BBB- bond comes a few days after the Republic of Philippines’ $2 billion 25-year offering, which is Asia’s first sovereign bond of the year.

Comparables, investor breakdown

The nearest comparables for ROI’s bond was its existing 10- and 30-year notes, which were trading around 4.2% and 5.18% on a curve adjusted basis, said a source familiar with the matter.

As for investor breakdown, both tranches were very similar with around half of the notes going to US investors, while the remainder is almost equally split between Asian and European investors, added the source.

For the 10-year offering, asset and fund managers subscribed to 73% of the notes, followed by banks with 14%, insurers and private funds 9%, private banks 2% and the public 2%.

As for the 30-year bond, asset and fund managers bought 75% of the paper, followed by insurers and private funds 13%, banks 8%, private banks 2% and the public 2%.

In secondary markets, ROI’s 10- and 30-year bonds have traded slightly upwards from a reoffer price of 99.39 and 98.36 respectively to 99.75 for both, according to Bloomberg bond data. This results in a yield of 4.15% and 5.14% respectively.

Citi, HSBC and Standard Chartered were the joint bookrunners of the transaction. Bahana Securities, Danareksa Sekuritas and Mandiri Sekuritas were the co-managers of the deal.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media