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| Republic of Indonesia | |
| Value | $2.5 billion 10-year bond |
| Bookrunners | Deutsche, JPMorgan, UBS |
| return to the Asian Deals of the Year index | |
If much of the world lacked bright moments in 2011, you could at least find them in Asia – and nowhere more so than in Indonesia.
The worst laggard of the Asian financial crisis is a country transformed, which is nothing new to foreign investors: by August, they held 36% of all rupiah government bonds in the country before a brief but manageable pullback later in the year. Indonesia’s numbers – whether foreign exchange reserves, GDP growth, net external debt or contribution of domestic demand – provided a compelling case for an upgrade to investment-grade status all year, and in December Fitch became the first of the rating agencies to give that vital and symbolic boost. The other two agencies are expected to follow.
A large part of Indonesia’s success was through its masterful use of the international capital markets. This included an impressive sukuk deal as well as conventional issues, but the standout was a $2.5 billion 10-year bond in April. It was a deal that felt as if an investment-grade credit was behind it; and the pricing proved it.
The deal came at a yield of 5.1% and a coupon of 4.875%, the lowest the country had achieved. It attracted $6.9 billion of orders from 270 accounts, particularly Americans, who took 49% of the deal.
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Rahmat Waluyanto, Indonesia’s ministry of finance |
“We found the right timing for that deal,” says Rahmat Waluyanto, director general of debt management in Indonesia’s ministry of finance. “We knew the market was waiting for Indonesian paper because of its scarcity value – we were not a very efficient user of international bonds compared with the Philippines. But it was the right time, the right issue and the right tenor, and it gave us our lowest-ever yield.” Having set Indonesia in the proper context, the deal also had a big knock-on effect. The following month, Pertamina, a state-owned oil and gas company, launched a $1 billion inaugural 10-year bond, and four days later added a $500 million 30-year tranche, capitalizing on the clamour among investors for longer state-backed paper. And by November, sentiment towards Indonesia was so strong – just as the mood elsewhere was so toxic – that it was able to price a $1 billion seven-year sukuk at a profit rate (such as a yield) of just 4% – this at a time when Italy was having to pay 7%.
All three transactions were credible deal-of-the-year candidates, and are best considered in aggregate as an illustration of a country finding its voice at the top table of the capital markets. Indonesia’s stock market was one of the few that went up last year; HSBC says its bond index for the country has topped 20% in three consecutive years. And if the two remaining rating agencies come through with their expected upgrade, the picture is going to get better still.
“I expect that funding costs will become much lower, not just from the bond and sukuk markets, but in credit,” says Waluyanto. While yields have plummeted on sovereign and similar paper, they haven’t yet done so in corporate bonds, and it’s likely that a spate of corporate issuance will come from the country this year when those yields do start to move.
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Asia |
| Sun Art Retail Group |
| Kingdom of Thailand |
| ICBC (Asia) |
| BP/Reliance |
| Vedanta Resources |
| Republic of Indonesia |
| Return to the Deals of the Year main index |
