Investors set to welcome RI bond

Investors set to welcome RI bond

Angela Pruitt, Dow Jones, New York

Indonesia is expected to receive a big `welcome back' from foreign investors who are anxious to pad their portfolios with the nation's upcoming bond sale.

Indonesia last week mandated Deutsche Bank and J.P. Morgan to sell the government's first overseas bond in more than seven years, in a deal that's expected to total up to US$1 billion.

The plan to tap international capital markets highlights the country's recovery from the crisis that gripped Asian economies in 1997. It also underscores the level of pent-up demand that exists for riskier credits, which has enabled several emerging market borrowers to issue debt in recent weeks.

"Bottom line, there is an inordinate amount of money (coming into the market)... people need diversification," said Michael Gagliardi, a fund manager at Atlantic Advisors in Connecticut. He noted that the deal will provide a liquid alternative to outstanding paper in the country.

Foreign investors have been gun-shy about investing in Indonesia due to ongoing political noise in the country, concerns about a weak judicial systems and civil unrest. However, fund managers say the country's improving economy is a big selling point.

Indeed, after growing 4 percent last year, the government projects that gross domestic product will rise 4.9 percent in 2004. Local financial markets have also been on fire - the country's main stock index rose 63 percent last year, making it the third best performing bourse in Asia.

"I have a lot money and very few places to invest it in," said Stephen Hope, a fund manager at Dalton Investments in San Francisco, on why he is interested in Indonesia's deal. He added that the country has a "reasonably improving credit profile... that's the best you can say for it."

Though Indonesia's credit rating remains four notches below the coveted `investment grade' level, the major rating agencies have upgraded the country's debt during the last five months, citing good fiscal performance and improving debt dynamics.

Indonesia's new bond, aimed at helping the government finance the 2004 budget, is expected to launch by March, ahead of the April parliamentary elections and the presidential vote in July. The securities are expected to carry a 10-year maturity with a yield between 6 percent and 7 percent.

The country's only outstanding dollar bond is a highly illiquid 2006 security currently yielding about 4 percent.

"I think it will be, generally, pretty successful," said an Asian debt specialist in New York, saying the new issue will provide a lot of liquidity to the local market. He added the market could see the country's new deal trade higher relative to higher-rated Philippine bonds.

The trader said an important harbinger for the government's new deal was the strong demand seen for a recent $350 million bond offering from Indonesian cellular company PT Excelcomindo, which garnered a little more than $1 billion in orders. "Obviously (there's) a pretty strong bid."

Indonesia follows a raft of emerging market issuers tapping international capital markets in order to lock in low interest rates and capitalize on continued demand for high-yield instruments.

The total issuance during the first two weeks of January was a record-breaking $10.8 billion, according to a report by research firm CreditSights.