Indonesia mulls euro, dollar sovereign bonds
Indonesia mulls euro, dollar sovereign bonds
Karen Lane, Dow Jones/Singapore
The Indonesian government will be among a handful of potential
Asian borrowers working through this week's string of Lunar New
Year-related holidays in Asia preparing for an international bond
offering in coming weeks.
Indonesian government officials started formal meetings on
Monday with legal counsel and the bond lead managers -- Citigroup
Inc., Deutsche Bank AG and UBS AG -- to discuss strategy for the
deal which is expected to start roadshowing later this month.
Euro-denominated issuance was among the ideas bankers
proffered earlier in the year at the request of Jakarta which,
like many others, was encouraged by the blowout 1 billion euro
(US$1.3 billion) deal from China last October.
"We haven't decided whether to go for a single or dual
currency," said a Jakarta government official. "But if we go
there (to euro), it won't be much."
Market talk suggests the Indonesian government will look to
sell a large U.S. dollar-denominated bond, perhaps as much as $1
billion, accompanied by a smaller euro issue for perhaps $300
million to $500 million equivalent.
The arguments in favor of euro are multi-fold.
"They want to absorb some of that investment coming from
Europe," said one Singapore-based banker.
European investors have being taking much more notice of Asian
credits of late, seeking fresh names and higher returns at a time
when primary issuance closer to home is slowing.
Trade between Europe and Indonesia is also growing, making
euro an increasingly natural currency hedge. At the same time,
Indonesia, like most other Asian countries, is thought to be
beefing up the euro portion of its foreign exchange reserves.
The European Union is Indonesia's second largest trading
partner after Japan. From 1999 to 2003, EU imports from Indonesia
grew on average by 3.3 percent per year, with exports to the
archipelago growing by an average of 5.7 percent per year.
Bankers not involved in the deal suggest investors may not be
as hungry for a euro-denominated offering from Jakarta as they
were for the China deal.
China is firmly in investment grade territory, but Indonesia
is rated a much-lower B2 by Moody's Investors Service and B+ by
Standard and Poor's Ratings Agency, albeit on what many analysts
say is an upward ratings trajectory.
As a less well-understood credit in Europe, Indonesia would
not be able to raise euro debt more cheaply than U.S. dollar debt
-- as China did -- making a benchmark issue in the single
currency much less compelling.
Talk is already swirling in the secondary market that the
government wants to raise debt at a spread of 200 basis points
over U.S. Treasuries. The existing $1 billion 2014 bond, launched
in March 2004 at 277 basis points over U.S. government debt, is
now trading at a 228-214 basis-point spread.
A number of other Indonesian banks, Bank Mandiri and Bank
Internasional Indonesia to name but two, are also waiting in the
wings but are not likely to emerge until later in the first
quarter or even the second quarter.
"Documentation always takes a while with these deals,"
lamented a banker close to one of the planned bonds which has
been in the pipeline since last year.
Likely to be joining Indonesia on the road in late February is
Shinhan Bank. The Baa1/BBB rated South Korean borrower is looking
for $300 million in Tier 1 debt with the help of Barclays, BNP
Paribas and Merrill Lynch.