Government increase bond sale by 20%

Government increase bond sale by 20%

Netty Ismail and Shanthy Nambiar, Bloomberg/Singapore

Indonesia raised the size of its biggest overseas bond sale to US$1.5 billion because of excess demand, after a cut in fuel subsidies restored investor confidence in the nation's finances.

Investors placed orders for about $3.8 billion of bonds, triple the original $1.25 billion on offer, two bankers familiar with the transaction said, asking not to be identified before the securities are priced later on Wednesday.

The demand reflected improving confidence in the nation's currency and returns that were set higher than the nation's outstanding debt and bonds with a similar rating. The rupiah has gained 18 percent from a four-year low reached on Aug. 30 on optimism President Susilo Bambang Yudhoyono is making progress toward meeting budget goals and protecting currency reserves.

"They are finally getting the budget in order," said Anton Hauser, who holds the nation's dollar bonds among the 1.1 billion euro (US$1.3 billion) of emerging market debt he helps manage at Vienna-based Erste Sparinvest KAG.

"They have also tried to keep the currency quite strong by raising interest rates." Hauser said he plans to buy the new bonds.

The bonds may be sold with a yield at the lower end of the target range, according to an e-mail sent to investors by one of the sale's arrangers.

Indonesia expects to price the 10-year bonds yielding 7.625 percent to 7.75 percent, or as much as 3.4 percentage points more than U.S. Treasuries, according to the e-mail. The government is seeking to price the 30-year bonds to yield 8.625 percent to 8.75 percent, the e-mail said.

Pricing at the low end would mean the new 10-year bonds would provide investors a yield of 22.5 basis points more than the current benchmark bond.

Indonesia's 7.25 percent bond due in April 2015 yielded 7.4 percent as of 5:40 p.m. in Singapore, according to data provided by Deutsche Bank AG. The yield is 15 basis points higher than it was on Sept. 30, before the Bali bombings.

"They are willing to offer a certain amount of yield pickup over the existing 2015 maturity bonds," said Dilip Parameswaran, head of Asian credit research at Calyon in Hong Kong. "All the things that the government has been trying to do are the right things in the right direction, so bond investors would be happy to buy into these bonds."