Indonesia asks 18 banks to submit sovereign bond sale proposals

Indonesia asks 18 banks to submit sovereign bond sale proposals

Bloomberg, Jakarta/Singapore

Indonesia invited Deutsche Bank AG, HSBC Holdings Plc. and 16 other overseas banks to pitch for a sale of as much as US$1.5 billion of bonds, a Finance Ministry official said in Jakarta.

The aftermath of the Dec. 26 tsunami, which has left 113,000 people dead in the Southeast Asian nation, will not delay the bond sale, scheduled to take place by the end of March, said Mulia Nasution, director general of treasury at the ministry.

"It is on schedule for the end of the first quarter," Nasution said in a telephone interview. "We need at least 3 months to prepare for the sale. We sent the invitation letters today."

Indonesia is selling the bonds, its third sale in 10 years, to help plug a budget deficit estimated at Rp 17.4 trillion (US$1.9 billion) this year, betting an economic rebound and higher credit ratings will lure investors. The economy is forecast to grow 5.5 percent this year, the fastest in nine years, from an estimated 5 percent in 2004.

Indonesia, which was the nation worst hit by the earthquake- triggered tsunami, needs to raise Rp 43 trillion next year from alternative sources after it exited a four-year, $5.5 billion International Monetary Fund lending program in December 2003.

"I think the fundamental outlook for Indonesia is still good despite the earthquake," said Wu Da, who helps oversee about $2.5 billion of Asian dollar bonds at DBS Asset Management in Singapore. "We will look at the bond sale depending on the yield offered. The quake doesn't affect our view of Indonesia's economic fundamentals."

The Paris Club, a group of 19 creditor nations, will meet on Jan. 12 to decide whether to waive $3 billion in annual debt payments by countries hit by the tsunami. A waiver would alleviate Indonesia's debt burden, Wu said.

Deutsche Bank, HSBC, JPMorgan Chase & Co. Barclays Plc., Credit Suisse First Boston, Merrill Lynch & Co., Citigroup Inc. and UBS AG are among the banks that were invited to send proposals for the bond sale, Nasution said. Goldman Sachs Group Inc., Morgan Stanley and Nomura Holdings Inc. were also invited.

Indonesia plans to pick as many as four banks in mid-February to arrange the bond sale.

Indonesia sold $1 billion of 10-year bonds in March, its largest overseas debt sale and the first since the 1997 financial crisis, drawing demand for more than eight times the amount offered. JPMorgan and Deutsche Bank helped manage the sale.

The government is considering selling between $1 billion and $1.5 billion of dollar bonds overseas, Nasution said, on Nov. 8. Officials will meet banks and investors in Singapore, Hong Kong, London and New York to gauge demand for the sale, he said then.

Standard & Poor's on Dec. 22 raised the nation's long-term foreign currency credit rating one step to the fourth-highest junk level, B+, from B. The high-risk, high-yield ranking puts the country on par with Pakistan and one level above Venezuela.

Moody's, which has a stable outlook on Indonesia, said on Oct. 7 it may raise the rating should growth accelerate. An upgrade would make it cheaper for the government and companies to raise money, helping attract investment.

Indonesia first sold dollar-denominated debt in 1996 when it had an investment-grade rating of Baa3 from Moody's. The sale was managed by Salomon Brothers Inc., now part of Citigroup, with help from Goldman Sachs, JPMorgan and Merrill Lynch.

Citigroup, Deutsche Bank and UBS AG were the top underwriters of bonds denominated in dollars, euros and yen sold by governments and companies in Asia outside of Japan and Australia last year, data compiled by Bloomberg show. The banks helped sell 38 percent of the record $38.2 billion of bonds sold in Asia this year, the data shows.

Indonesia's 2014 dollar bond was bid to yield 6.71 percent today, or 2.4 percentage points more than U.S. Treasuries, from a high of 9.23 percent on June 3, according to Deutsche Bank prices. The risk premium, or the extra yield that borrowers pay relative to Treasuries, on Indonesian debt has narrowed.