Two of Asia’s savviest sovereign issuers, the Republic of Indonesia (RoI) and the Republic of Korea (RoK), tapped the offshore bond markets in quick succession, with both offerings generating strong demand from investors.
Riding on the back of a rating upgrade, RoI priced a dual currency issuance amounting to US$750 million for 10 years and 750 million euros (US$847 million) for seven years. The sovereign first launched the US dollar SEC-registered tranche on June 11 with an initial price guidance of 3.75% area, which it later revised to between 3.45% and 3.50%. At that point, it announced that a new seven-year euro tranche may follow when the London session opens.
The US$750 million tranche was eventually priced at 99.561% with an interest rate that was even tighter than the final price guidance at 3.40% to offer a yield of 3.45%. This was equivalent to a spread of 130.5 bp over US treasuries. The 750 million euros, on the other hand, was priced at 99.744% with an interest rate of 1.45% to offer a yield of 1.487%. The RoI previously printed a dual currency issuance of US$1 billion and one billion euros in April 2018, with similar tenors of 10 years and seven years, respectively.
The US dollar tranche garnered total demand of over US$1.9 billion, including US$272 million orders from joint lead managers and co-managers, across 107 accounts. In terms of geographic distribution, 58% of the bonds were allocated to Asia, including 9% to Indonesia, 23% to Europe and 19% to the US. By type of investors, insurance companies, pension funds and public sector entities accounted for 41% of the paper, while fund managers and corporates took 35%, banks 20%, and private banks and other investors 4%.
The euro tranche generated a bigger order book of 4.6 billion euros from 271 accounts with 73% of the bonds sold in EMEA, 19% in Asia, including 1% in Indonesia, and 8% in America. Fund managers and corporates were the biggest buyers, making up 64%, insurance companies, pension funds and public sectors 11%, banks 9%, and private banks and other investors 16%.
In executing the deal, the RoI took advantage of the recent rating upgrade from S&P Global Ratings from BBB- to BBB announced at the end of May to reflect the country’s strong economic growth prospects and supportive policy dynamics. And given the RoI’s stable policy and prudent fiscal settings, S&P Global believes it enhances its overall credit profile.
The bonds were drawn under the Indonesian government’s existing US$10 billion shelf programme filed with the US Securities and Exchange Commission and the proceeds are intended to finance the country’s budget deficit and for general financing purposes.
Citi, Credit Agricole CIB, Deutsche Bank, HSBC, Mandiri Securities and Standard Chartered were the joint lead managers and underwriters for the transaction, while Bahana Sekuritas and Trimegah Sekuritas Indonesia acted as co-managers.
RoI’s latest foray in the offshore bond markets followed its fundraising in the Japanese yen market in May this year where it raised 177 billion yen (US$1.63 billion) in what was the largest Samurai bond raised so far by an Asian sovereign through a public offering. Earlier in January this year, it also accessed the US dollar bond market with a dual-tranche US$2 billion deal, which included a US$750 million green sukuk.
Hot on the heels of the RoI, the RoK also tapped the US dollar bond market on June 12 with a dual-tranche SEC-registered offering comprising its first ever green and sustainability bonds amounting to US$500 million for five years, and US$1 billion conventional foreign exchange stabilization bonds for 10 years.
The five-year bonds were priced at 99.166% with an interest rate of 2% per annum, while the 10-year bonds were priced at 98.456% with an interest rate of 2.50% per annum.
Proceeds from the green and sustainability bonds will be allocated to eligible categories of projects in accordance to RoK’s green and sustainability bond framework. The eligibility criteria under the framework are also aligned with the United Nations’ Sustainable Development Goals. Sustainalytics issued the second-party opinion on the green and sustainability bond framework.
Eligible green categories under the RoK bond framework include green buildings, waste management and waste-to-energy, water and wastewater management, renewable energy, clean transportation and energy efficiency projects. The eligible social categories include healthcare, education, affordable basic structure and venture investment. Such financing aims to provide essential services and enhance socio-economic advancement by providing free or affordable alternative services to underserved people.
Meanwhile, the proceeds from the 10-year bonds will become part of the Foreign Exchange Stabilization Fund established and managed under the Korean Foreign Exchange Transactions Act.
The bond issuances generated a combined order book of US$4.8 billion, with the five-year tranche attracting US$1.8 billion from 72 accounts and the 10-year bonds garnering US$3 billion from 96 accounts. More than half of both tranches were distributed in Asia and were widely distributed to real money accounts.
Citi, Credit Agricole CIB, HSBC and J.P. Morgan were the joint bookrunners of the RoK transaction.