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.