Photo: Finance Ministry

JAKARTA (TheInsiderStories) – Indonesian Government has raised $4 billion from the global bonds issuance, the proceeds of which will be used for pre-funding the 2018 State Budget, Finance Ministry said.

The global bonds consist of three tranches – RI0123 bond worth $1 billion with  tenor of 5 years and yield of 3 per cent per annum; RI0128 series worth $1.25 billion with tenor of 10 years and RI0148 bond series worth $1.75 billion with tenor of 30 years and yield of 4.40 per cent.

The yield for the first tranche (5-years) and the third tranche (30 years) were the “lowest ever yield received by the Indonesian government for similar tenor”. The government received final order-book of 120, 130 and 150 investors for the respective tenor of 5 years, 10 years and 30 years.

“The current (global bonds) issue has made Indonesia’s yield curve to be improved, along with an expansion of investor base,” Director of Debt Strategy and Portfolio Directorate General of Budget Financing and Risk Management Ministry of Finance Schneider Siahaan said in the statement.

The first tranche will be matured on Jan. 11, 2023, second tranche on Jan. 11, 2028 and the third tranche on Jan. 11, 2048.

The bonds issuance was given “investment grade” rating Baa3 by Moody’s, BBB- by Standard & Poor’s and BBB- by Fitch.

Acting as Lead Managers and Joint Bookrunners in the transactions are BNP Paribas, Citigroup, Deutsche Bank, Goldman Sach (Singapore) Pte and PT Mandiri Sekuritas. Acting as co-Managers are PT Bahana Sekuritas, PT Danareksa Sekuritas and PT Trimegah Sekuritas Indonesia Tbk.

The bonds series will be registered on the Singapore Stock Exchange and Frankfurt Stock Exchange. In July 2017, the Indonesia has successfully issued Government Bond in two foreign currencies (dual-currency) amounting to $2.0 billion and EUR€1.0 billion, respectively.

In 2017, the Indonesian government has issued eurobond worth 1 billion euros, U.S dollar bond $3.5 billion and global Sukuk $3 billion.

Moody’s assigns (P)Baa3

Moody’s Investors Service has assigned provisional (P)Baa3 senior unsecured debt ratings to the U.S dollar-denominated bonds to be issued by the Government of Indonesia (Baa3 positive). The senior unsecured bond will rank pari passu with all of the government of Indonesia’s current and future senior unsecured debt.

The provisional (P)Baa3 rating is based on the preliminary prospectus dated Dec. 1, 2017. Moody’s expects to remove the provisional status of the rating upon the closing of the proposed issuance, and a review of the final terms.

Indonesia’s Baa3 issuer rating incorporates the country’s relatively low government debt levels, narrow fiscal deficits, and healthy growth as compared to similarly rated emerging market peers. Indonesia also benefits from the large scale of the economy and a stable banking system that poses limited contingent risks to the sovereign.

The narrow revenue base is a key credit constraint that hampers the government’s ability to support economic growth given its commitment to the statutory deficit ceiling of 3.0 per cent of GDP. Other credit challenges include a shallow domestic capital market, which results in a reliance on external funding.

The positive outlook on Indonesia’s issuer rating reflects a reduction in its level of external vulnerability as well as ongoing policy reforms.

Indonesia’s external position has strengthened despite low commodity prices and bouts of volatility in capital flows over the past two years.

The current account deficit narrowed to 1.8 per cent of GDP in 2016, and 1.5 per cent of GDP during the first nine months of 2017, from over 3 per cent as recently as 2014.

Along with net inflows of foreign direct and portfolio investments, a narrower current account deficit contributes to a build-up of gross international reserves to $126.6 billion as of end-October 2017, providing a large buffer against volatility in capital flows.

These developments are partly the result of a shift in monetary policy towards preserving macroeconomic stability and away from a focus on short-term growth. Fuel subsidy reform implemented in 2015 has already contributed to moderate external vulnerability.

Moreover, the government has demonstrated fiscal discipline against the backdrop of continued pressure from lower oil and gas prices in recent years. More generally, the government has pursued structural economic, fiscal and regulatory reforms, although these reforms have not yet provided a large boost to private sector investment.

An upgrade would result from further progress in reducing external vulnerabilities and improving institutional strength. This assessment would be supported by a reduction in the government’s reliance on external debt, or tangible evidence that reforms foster investment, competitiveness or sustained increases in revenues.

A downgrade is unlikely given the positive outlook. We could revise the outlook to stable if the nascent institutional strengthening is on hold or reversing, there is a lack of improvement in revenue performance, the growth outlook weakens relative to peers, and fiscal, debt, or balance of payments metrics weaken significantly.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

Seeks Another $50 billion in Bond Market

In the 2018 State Budget, the government aims to issue  Rp668.6 trillion ($50.2 billion) in government bonds (gross). Of this figure, about 20 to 25 per cent will be issued in global currencies, including US dollar, Japanese yen and Euros.

David Sumual, an economist with private lender PT Bank Central Asia, sees foreign capital inflow as still fueling emerging markets, including that of Indonesia, following moderate outlook for any the Federal Reserves rate increase.

Against this, a mixed message from the Euro Central Bank, indicating they will ease off on quantitative easing (government bonds, mortgage debt securities purchases); this will likely exert a lighter effect than any US decision.

Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com

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