Indonesia Markets Dollar Bonds After Philippines’ Yield Hits Low

JANUARY 08, 2015

Indonesia is marketing 10- and 30-year dollar bonds, according to people familiar with the matter, following the Philippines successful sale this week.

The 10-year debt will be offered at a yield of 4.5 percent and the 30-year paper is being marketed at 5.5 percent, people familiar with the plan who asked not to be identified as the information is not public said on Thursday.

The Philippines sold$2 billion of 25-year notes at a record-low yield of 3.95 percent, and the sale was seven times oversubscribed. Indonesia’s nine- and 29-year dollar securities are paying 4.13 percent and 5.18 percent, respectively, in the secondary market.

“It’s very possible for this sale to garner a similar kind of demand considering the yields offered,” said Ezra Nazula, who manages more than $2 billion as head of fixed income at Manulife Aset Manajemen Indonesia in Jakarta.

“The government needs to offer a premium over existing yields as there’s an expectation for higher dollar rates ahead, but what’s offered looks attractive to me.”

The US economy will probably keep improving, Federal Reserve policy makers said in minutes of their December meeting released on Wednesday, bolstering the case for the monetary authority to raise interest rates this year.

Indonesia aims to sell debt denominated in dollars, yen and euros this quarter to meet a record-high gross issuance target of Rp 431 trillion ($34 billion) for 2015, the Finance Ministry said in November.

Subsidy reform

The Southeast Asian nation’s dollar bonds due January 2024 fell for a third day on Thursday, pushing the yield up three basis points to 4.13 percent, data compiled by Bloomberg show. The yield on the notes due January 2044 rose three basis points, or 0.03 percentage point, to 5.18 percent.

President Joko Widodo has scrapped subsidies for gasoline and imposed a fixed subsidy for diesel since he took office in October. That has freed up at least Rp 120 trillion a year to spend in other areas, Energy Minister Sudirman Said said in an interview with Bloomberg TV on Wednesday. The country’s economy expanded 5.01 percent in the third quarter of 2014, the slowest pace in five years.

Eliminating the gasoline subsidy and capping diesel aid at Rp 1,000 a liter shows the government’s commitment to reform and “will boost the private sector’s confidence in Indonesia’s policy and operating environment, which will support investment and growth,” Moody’s Investors Service analysts Atsi Sheth and Amelia Tan wrote in a note dated Thursday.