RI bond excites Asian debt market

RI bond excites Asian debt market

Karen K. Lane, Dow Jones, Singapore

Investors will have plenty of choice in the next few months with the Asian international bond pipeline rapidly filling up - but it's an Indonesian sovereign that is whetting market appetite.

The first from the country since 1996 and most likely the first sizable sovereign from Asia this year, the Indonesian bond will likely be sizable, offering yield hungry investors a grab at a rare credit.

The bond could come to market soon. Requests for proposals went out to 16 investment banks last week and are due in by 0800 GMT (02:00 p.m. Jakarta time) on Thursday.

A Department of Finance official said it will draw up a short list of around seven potential lead managers next week, leaving the final decision to the Minister of Finance, Boediono. It has already received some proposals, the official said.

Bankers says the government didn't make specific requests for feedback but indicated the sovereign was most keen on a US$500 million issue carrying a seven- to 10-year maturity.

"They have been looking at half a billion but could sell more, maybe up to a billion," a member of one syndicate desk said.

The official ruled out a multi-maturity offering as suggested by some in the market.

By all accounts Indonesian paper is in demand.

"I think there is interest out there for Indonesian paper given the cash people have on the sidelines and that people are looking for additional yield," said a distressed debt trader.

The rush for yield has seen the spread on the Malaysia 2011 bond trade down to around 32 basis points from a massive 142 basis points at the start of 2003.

Indonesia's sole outstanding bonds, $400 million due August 2006, are currently quoted at 106.25 to 107.25.

The mid-spread over U.S. Treasurys, at around 208 basis points now, has shrunk sharply from the 389 basis points it traded at a year ago, indicating an improved view of the sovereign as well as demand for higher-yielding paper.

But it hasn't always been smooth sailing for the bond, which was trading at over an 800-basis-point spread in early 2001 and was over 420 basis points in February, as attitudes toward the credit fluctuated.

The Indonesian economy is also on a slow but improving trend. JPMorgan forecasts growth of 4 percent this year and 4.5 percent next year, an improvement in the merchandise trade balance and a gradual reduction in external debt.

At roadshows in Singapore, Hong Kong and Japan in mid- November, an A-list of the country's economic decision makers queued up to stress that Indonesia was a quality investment, albeit one that needs some work.

"Indonesia is like a good car from Mercedes or BMW but the battery is flat so we need to jump-start the battery, so here we are," Laksamana Sukardi, Minister of State-Owned Enterprises, told potential investors then.

Attendees agreed it had a good story to tell.

Although pricing is still some way off, talk has already started of a 7.5 percent coupon which would put the bond spread at around 320 basis points over U.S. Treasurys.

Indonesia has a long-term foreign currency rating of B2 from Moody's Investors Service, a B rating from Standard & Poor's and B+ from Fitch. All three have upgraded their ratings in the last five months.

Early indications of the demand for the Indonesian credit will come from the market's response to a mid-sized dollar issue from the country's third largest cellular phone operator, Excelcomindo.

The $250 million to $300 million five-year deal, to be lead managed by CSFB, Morgan Stanley and UBS, was first touted last year and is expected on the market within two weeks.

Indonesia may want to sell as early as possible, at least before other sovereigns come to market and demand for high-yield bonds slows. Market players are already speculating that the Philippines may come to the market as early as this month, pipping Indonesia to the post.

Earlier this week, National Treasurer Sergio Edeza said no new bonds were in the works but lead managers note the ministry has changed its mind quickly in the past and tapped the market despite statements to the contrary.

Philippine bonds have been bought up in recent weeks as the market concluded political jitters are now all priced in.

The 2013 bonds were Thursday quoted at 106.25 to 107.25, with the 2025 at 113.125 to 113.875. Both are up about a quarter point on the day and traders say they are close to their peak.

Malaysia is also a candidate and speculation is of a deal worth as much as $2 billion. For the moment, bankers are approaching the sovereign rather than the other way round and with such a large sum, many say a multi-maturity offering could be the way to go.