The Republic of Indonesia (RoI) appears to be developing a habit of printing large bond deals towards the end of the year, as it did so again for the second year in a row last week.
The sovereign on December 1 priced a Reg S/144A three-tranche offering totaling US$3.5 billion to partly finance its 2017 budgetary requirements. The first tranche was for five years amounting to US$750 million, which was priced at 99.767% with a coupon of 3.70% to offer a yield of 3.75%. This is at the tight end of the final price guidance of 3.80% area (+/- 5bp) and 25bp inside of the initial guidance of 4% area.
The second tranche was for 10 years amounting to US$1.25 billion, which was priced at 99.592% with a coupon of 4.35% to offer a yield of 4.40%. This was also at the low end of the final price guidance of 4.45% area (+/- 5bp) and 35bp back of the initial guidance of 4.75% area.
The final tranche was for 30 years amounting to US$1.5 billion, which was priced at 99.246% with a coupon of 5.25% to offer a yield of 5.30%. This was likewise at the tight end of the final price guidance of 5.35% area (+/- 5bp) and 40bp inside of the initial guidance of 5.70%.
The RoI executed a similar strategy in 2015 when it priced on December 1 a dual-tranche bond offering totaling US$3.5 billion – US$2.25 billion for 10 years and US$1.25 billion for 30 years
The latest transaction marked the first G3 emerging market bond printed by a sovereign following the US election and exemplifies RoI’s stature as the most frequent sovereign issuers from Asia this year, having tapped as well the euro, yen and the sukuk markets for its funding requirements.
Drawn from RoI’s US$50 billion global medium term note (GMTN) programme, the deal garnered total orders of US$12 billion across the three tranches. The five-year tranche attracted a total demand of US$5.2 billion from 298 accounts with 48% of the bonds sold in the US, 27% in EMEA and 25% in Asia, including 3% in Indonesia. By type of investors, fund and asset managers are the biggest buyers as they accounted for 74%, followed by banks with 12%, private banks and other investors 9% and sovereign wealth funds 5%.
The 10-year tranche generated an order book of US$3.5 billion from 265 accounts with 38% allocated in the US, 18% in EMEA and 44% in Asia, including 18% in Indonesia. Fund and asset managers likewise bought the bulk of the paper with 53%, with banks taking 22%, insurance companies and pension funds 18%, sovereign wealth funds 5% and private banks 2%.
The 30-year tranche also garnered a solid demand amounting to US$3.3 billion from 190 accounts, with 59% sold in Asia, including 1% in Indonesia, 29% in the US and 12% in EMEA. By type of investors, insurance companies and pension funds drove this tranche as they accounted for 62%, while fund and asset managers bought 27%, sovereign wealth funds 6%, private banks 3% and banks 2%.
Bank of America Merrill Lynch, Citi, HSBC and Standard Chartered were the joint bookrunners for the transaction, while Bahana Securities Danareksa Sekuritas, Mandiri Sekuritas and Trimegah Sekuritas Indonesia acted to co-managers.
The four joint bookrunners were also the arrangers of the GMTN programme, while ANZ, Barclays, BNP Paribas, Deutsceh Bank, Goldman Sachs, Societe Generale CIB and UBS acted as dealers.
Moody’s Investors Service, which assigned a Baa3 rating to the bond issue, notes that lower commodity prices for oil and gas have pressured government revenue, leading to widening fiscal deficits and rising government debt – albeit to still low levels compared to similarly-rated emerging market peers, as well as to the G-20 group of systemically important countries. Against this backdrop, it says the government has pursued a tax amnesty programme earlier this year to augment revenue and to keep the fiscal shortfall under the statutory limit of 3% of GDP.
