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Treasury & Capital Markets
RoI prices largest sukuk ever
The Republic of Indonesia (RoI) followed up its fund raising foray in December 2016 with a US$3 billion bond issuance, this time accessing the sukuk market with its largest offering ever.
Chito Santiago 23 Mar 2017

The Republic of Indonesia (RoI) followed up its fund raising foray in December 2016 with a US$3 billion bond issuance, this time accessing the sukuk market with its largest offering ever.

The sovereign on March 22 priced a Reg S/144A dual-tranche sukuk totalling US$3 billion, exceeding the US$2.5 billion sukuk that it printed in March last year. The first tranche was a five-year sukuk amounting to US$1 billion, which was priced at par with a similar profit rate and re-offer yield of 3.40%. This was at the tight end of the final price guidance of 3.45% area (+/- 5bp) and equivalent to a spread of 147bp over the US treasuries.

The second tranche was a 10-year sukuk amounting to US$2 billion, which was priced at par with a similar profit rate and re-offer yield of 4.15%. This was also at the low end of the final price guidance of 4.20% area (+/- 5bp) and represented a spread of 175.8bp over the treasuries.

Using their most recent 2021 and 2026 sukuk as references, pricing came a little bit inside their curve in both tranches, which held up nicely in the secondary market. The five-years were trading at 100.35% shortly before lunch on March 23, while the 10-years were trading at 100.05%.

“The deal reflects the strong progress that Indonesia has achieved over the years,” says a banker familiar with the transaction. “It is regarded as one of the best performers globally in terms of economic performance and a genuine success story. It has also made a lot of progress on the ratings front and has a strong following among the global fixed income investors, including being a regular issuer in the sukuk market.”

In doing so, the RoI has established a regular pattern of issuance and so investors are looking forward to this part of the funding cycle, the banker adds.

In executing the wakala-structured transaction, the RoI undertook a roadshow meeting investors in Asia, Europe and the Middle East. It was well-received and the deal arrangers announced the trade on March 22 with an initial guidance of the 3.75% area for the five-year tranche and the 4.50% area for the 10-years.

The transaction built a strong book amounting to US$4.5 billion after lunch and peaked in excess of US$13 billion as it generated a robust momentum throughout the day. This allowed the arrangers to announce a final price guidance of 3.45% area (+/- 5bp) for the five-years and 4.20% area (+/- 5bp) for the 10-years, eventually pricing the transaction at the tight end.

The latest sukuk offering demonstrated the progression of how the RoI has increasingly relied on this market for its funding requirements. The sovereign debuted in the US dollar sukuk market in 2009 to help plug its budget deficit, printing a five-year US$650 million offering and paying a fixed 8.8% rate of return.

It has since then regularly tapped this market annually and last year, it priced a dual-tranche transaction totalling US$2.5 billion. The five-year sukuk amounting to US$750 million paid a profit rate of 3.40%, while the 10-year sukuk amounting to US$1.75 billion carried a profit rate of 4.55%.

The latest sukuk is issued through Perusahaan Penerbit SBSN Indonesia III under its existing trust certificate issuance programme, which was recently increased from US$10 billion to US$15 billion. It followed another large bond issuance in December 2016 in which the sovereign raised US$3.5 billion in three tranches to partly finance its 2017 budgetary requirements.

Deutsche Bank, HSBC, Mandiri Securities, National Bank of Abu Dhabi and Standard Chartered were the joint bookrunners and lead managers for transaction, while Bahana Securities, Danareksa Sekuritas and Trimegah Sekuritas Indonesia acted as co-managers.

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