Indonesia Raises ¥100 billion from Samurai Bond Issuances

President Joko Widodo and his Cabinet members - Photo by President Office

JAKARTA (TheInsiderStories)— The Ministry Finance (MoF) of Indonesia has issued Samurai Bonds of ¥100 billion (US$912 million) on Thursday (24/5), equal to the issuance of last year, said one government official.

The notes consists of four series RlJPY0521 has maturity dates May 31, 2021; RlJPY0523 maturing May 31, 2023; RlJPY0525 maturing May 30, 2025; and RlJPY0528 maturing May 31, 2028, with a value of respectively ¥49 billion, ¥39 billion, ¥3.5 billion, and ¥8.5 billion. Each series has a coupon rate of 0.67 percent, 0.92 percent, 1.07 percent, and 1.27 percent.

Director of Government Debt Securities at the Directorate General for Budget Financing and Risk Management at the MoF Loto Srinaita Ginting said, the amount issued by the government is the best value amid the market fluctuation.

Yesterday, Moody’s Investors Service has assigned a provisional foreign currency senior unsecured programme rating of (P) Baa2 to the new samurai shelf programme by the Government of Indonesia. The shelf programme was filed under the Japanese shelf registration process on May 15th, and the overall amount of the new securities that can be issued under the shelf is JPY600 billion.

Its said, the rating mirrors the Government of Indonesia’s long-term issuer rating of Baa2 with stable outlook. Concurrently, Moody’s also assigned a Baa2 rating to drawdowns under the programme, with maturities of 3, 5, 7 and 10 years.

Last April, Indonesia has raised $1 billion and one billion Euro in a dual-currency bond sale. The Euro denominated 7-year tranche due April 24, 2025 was priced at a coupon of 1.750 percent, the lowest coupon in the Euro market till date–yielding of 115 basis points over the 7-year mid swap rate or 1.780 percent.

The Euro 7-year notes marks the republic’s fifth issuance in the Euro Market and its first U. S SEC-registered Euro Issuance. While, the U.S dollar denominated 10-year tranche due April 24, 2028 was priced at a coupon of 4.100 percent and a yield of 4.130 percent from initial price guidance 4.400 percent.  

The issuance also marks the country’s second dual currency transaction, following previous one in July, 2017. At that year, government has successfully raised 100 billion yen from the Samurai bonds sale and 1 billion Euro from the Euro bonds.

Last week, Moody’s has upgraded Indonesia’s sovereign credit ratings to a notch above its lowest investment grade, parallel to the rating given by fitch for Indonesia in January. S&P still rates Indonesia at the bottom of its investment grade.

The bonds are rated Baa2 by Moody’s, BBB- by Standard & Poor’s and BBB by Fitch. The notes will settle on April, 2018 and will be listed on the Singapore Stock Exchange and Frankfurt Stock Exchange.

Credit Agricole CIB, Deutsche Bank, Goldman Sachs, HSBC and local hous PT Mandiri Securities acted as Joint Bookrunners for the transaction, while PT Bahana Sekuritas, PT Danareksa Sekuritas and PT Trimegah Sekuritas Indonesia Tbk (IDX: TRIM) acted as Co-Managers.

So far, Indonesia has raised Rp846.4 trillion (US$61.78 billion) from selling the government bonds, where  80 percent of them in local currency denomination. Proceeds from the bond sale will be used to help plug budget deficit.

The country’s deficit stood at 2.48 percent of Gross Domestic Product (GDP) in 2017. This year, the government aims to reduce the deficit to 2.2 percent of GDP, partly supported by a planned 20 percent increase in tax revenue.

Analysts have said that a potential risk for Indonesia is the ratio of domestically issued government bonds held by non-residents is high at around 40 percent. A big chunk of bonds in foreign hands, means there is a risk of sudden outflows in times of global economic turmoil.

Recently, the directorate general Luky Alfirmansaid the ministry seek alternate funding channels in responding the rising of country’s bond yields due to current global situation. In recent months there has been turmoil in financial markets such as the depreciation of the Rupiah against U.S dollar which is almost simultaneously with the rise in global oil prices.

Initially this condition had a negative impact on the market of Government securities due to the tendency of investors to avoid risk, but in the auction in the primary market on May 15, investors have participated in entering a reasonable bid that shows a signal of recovery of investor confidence .

To anticipate fluctuating financial market conditions and impact on potential yields and unfavorable Government bond auction results, the ministry has prepared alternative sources of financing through additional withdrawal and private placement, as well as opening options to increase the portion of foreign currency financing.

The government has also run Crisis Management Protocol to manage risks in the government securities market and prepare Bond Stabilization Framework scheme to mitigate the impact of sudden reversal by involving the related state-owned enterprises.

Indonesia needs foreign money to help bridge funding gaps in the government’s ambitious plans for new infrastructure across a nation of more than 250 million people. This year, the government also has other options to secure State budget financing such as loans from multilateral agencies or private placement.

In terms of financing, during January to April 2018, the ministry has fulfilled the deficit requirement of the state budget through the issuance of government securities amounting to Rp189.70 trillion (US$13.45 billion) or 45.76 percent of the financing target. This amount continues the downward trend of government bond issuance in the same period since 2016.

Meanwhile, through the withdrawal of Foreign Loans, the Government meets the state budget deficit of Rp17.57 trillion or 34.21 percent of the target. During the period, there was a realization of financing of Rp188.71 trillion.

The realization of such financing continues the declining trend over the past two years. The fulfillment of such financing is part of the Government’s front loading strategy in order to anticipate the uncertainty of the dynamics of global developments.

The proceeds of the notes to be issued under the programme are intended to finance the budget deficit or for general financing purposes.

Yen 1: US$0.0091, US$1: Rp14,100