Indofood sells most bonds offshore

Indofood sells most bonds offshore

Dow Jones, Jakarta

PT Indofood Sukses Makmur has sold most of its US$280 million five-year bonds to offshore investors, further signaling a return of foreign interest in high-yielding Indonesian assets.

Lead underwriter Credit Suisse First Boston Corp. said Wednesday it received Tuesday orders for the Indonesian company's dollar-denominated bond totaling slightly over $400 million.

This led the world's largest instant noodle maker to raise the issue size to $280 million from a planned $200 million, making it the largest dollar bond issue to emerge from Indonesia since the 1997-1998 Asian financial crisis.

The strong response to Indofood, which comes on the back of cellular operator PT Telekomunikasi Selular Indonesia's successful offshore $150 million debt issue late April, is further evidence that foreign investors are now willing to nibble at dollar debts issued by Indonesian companies.

Analysts say this is partly in response to the country's more stable political and economic situation under President Megawati Sukarnoputri, and also because such bonds offer high yields.

Indofood's five-year bonds carry a coupon rate of 10.375 percent with a yield-to-maturity of 10.625 percent - at the tight end of the indications of between 10.500 percent and 10.875 percent. The spread was 630 basis points over the comparable U.S. Treasury.

The bonds made a strong debut Wednesday and were quoted at 99.50-99.75 compared with its issue price of 99.05, according to offshore dealers.

Private bankers in Asia drove demand, absorbing 82 percent of the issue. Singapore accounted for almost two-thirds of Asian demand, with Hong Kong and Indonesian investors taking most of the remainder. Another 8 percent of the issue went to European investors, and the balance 10 percent to offshore U.S. funds, CSFB said.

"In term of investor type, 44 percent of Indofood bond buyers were funds, 18 percent banks, and 38 percent private banking institutions," a CSFB official said.

Analysts credited Indofood's successful attempt to tap the offshore market to its strong business fundamentals, in particular, its dominant share of Indonesia's instant noodles and cooking oil market.

Although some new players are trying to enter the lucrative domestic instant noodle market, Indofood continues to enjoy an 80-90 percent market share.

But only a handful of companies - those with solid track records or a steady stream of dollar-denominated revenues - will entice foreign investors, who remain cautious about conditions in Indonesia.

For the majority, raising money continues to be fraught with difficulty as the local banking system remains burdened with hefty nonperforming loans.

A few large Indonesian companies have plans to offer foreign currency denominated debt in the near term.

Telkomsel's parent, state-owned domestic call operator PT Telekomunikasi Indonesia, plans to issue between $100 million and $150 million of bonds in July.

PT Aneka Tambang, a state-owned mining company, is mulling a foreign currency issue to fund an expansion plan.

State-owned international call service provider PT Indonesian Satellite Corp., is also planning to issue dollar-denominated bonds to help finance a further 25 percent stake purchase in second-tier cellular phone operator PT Satelit Palapa Indonesia.