Global bond more than twice oversubscribed: Government

Urip Hudiono, The Jakarta Post, Jakarta

Patience does pay. Waiting for just the right moment to enter the market, the government sold on Wednesday US$1 billion worth of sovereign bonds, having previously delayed the offering amid unfavorable market conditions.

In an announcement made on Thursday of the sale, Minister of Finance Yusuf Anwar said the bonds were more than twice oversubscribed, drawing in offers of up to $2.2 billion from over 200 investors during its 36-hour book-building process.

"The sale was successful as it was carefully planned and done in a timely manner," he said.

Some 54 percent of the deal, which is the first global bonds sale by an emerging market issuer since last month, went to Asian investors, 28 percent to Europe and 18 percent to the U.S.

Banks and fund managers took 38 percent each, insurers 14 percent, while the remaining went to individual investors.

The sale of the bonds, which will mature on April 20, 2015, was managed by Citigroup, Deutsche Bank and UBS Investment Bank.

Yusuf added that the 10-year bonds carried a coupon rate of 7.25 percent and a yield-to-maturity -- or an effective interest rate that the government has to pay to investors -- of 7.375 percent.

With such a yield, the bonds will have a spread of 302 basis points -- or 3.02 percent -- above the 10-year U.S. Treasury bonds, which currently carry a yield of 4.36 percent. It is also higher than the 6.85 percent yield on the $1 billion worth of 10- year global bonds the government sold March last year.

Wednesday's global bonds sale is Indonesia's third, after last year's $1 billion and a $400 million maiden overseas bonds issue in 1996.

The government initially planned to hold the global bonds sale last month but then postponed it as global market recently slumped due to soaring oil prices and the U.S. Federal Reserve's hiking of its benchmark interest rates, making investors more interested to put their money in U.S. Treasury bonds.

Commenting on whether the yield would be too costly for the government, head of the ministry's fiscal analysis department, Anggito Abimanyu said that the issue was "relative", considering the current yield of the U.S. Treasury bonds.

"We then have to calculate the spread and risk premium that investors are asking for our bonds," he said, adding that Indonesia's bonds had a relatively better spread compared to global bonds from other countries.

Data from the ministry shows that similar bonds issued by the Philippines and maturing in 2015 have a spread of 436 basis points, while Peru has 329 basis points. Meanwhile, global bonds issued by Brazil, Colombia and Venezuela -- all maturing in 2014 -- carry a spread of 457, 435, and 433 basis points, respectively.

Market analysts have said that the ideal spread for Indonesia's global bonds should be somewhere around 2 percent, making it still attractive for investors but not too costly for the government.

Meanwhile, head of the ministry's debt portfolio management unit Rachmat Waluyanto said the proceeds from the global bond would help provide an adequate supply of foreign currency to the country, apart from helping plug this year's state budget deficit.

The government plans to issue Rp 43 trillion in domestic and global bonds this year. With Wednesday's sale, the government has issued Rp 17 trillion worth of bonds thus far this year.