Indonesian government issued unguaranteed JPY100 billion

JAKARTA (TheInsiderStories) – Indonesian government issued unguranteed samurai bonds JPY100 billion in May, 31 to finance the deficit 2017’s budget, Finance Ministry announced.

For the first time Indonesia issued samurai bonds in a public offering format since the enactment of Law Number 24 Year 2002 regarding Sovereign Debt Instruments. In addition, for the first time the government issues samurai bonds with a 7-year tenor.

Quoting of the official statement, Indonesia issued three series RIJPY0620 with three years tenure, RIJPY0622 five years, and RIJPY0624 seven years. All three have obtained Baa3 ratings from Moody’s, BBB- from Fitch, and BBB- from R&I.

The nominal issued for RIJPY0620 of JPY40 billion, RIJPY0622 of JPY50 billion and RIJPY0624 of JPY10 billion. The coupon rate was 0.65 percent, 0.89 percent, and 1.04 percent, respectively.

The issuance and settlement of the three samurai bonds series will be conducted on June 8. Joint lead arrangers in this transaction are Mizuho Securities Co., Ltd., Nomura Securities Co., Ltd., and SMBC Nikko Securities Inc.

Previously, Moody’s Investors Service has assigned Baa3
senior unsecured debt ratings to Japanese yen-denominated bonds to be issued by the Government of Indonesia (Baa3 positive).

According to Moody’s Indonesia’s Baa3 issuer rating incorporates the country’s low 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 — if shallow — 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% of GDP.

Other credit challenges include weak rule of law and control of corruption according to the Worldwide Governance Indicators, as well as a shallow domestic capital market, which contributes to Indonesia’s reliance on external funding.

The positive outlook on Indonesia’s issuer rating reflects emerging signs of a reduction in structural constraints, including its level of external vulnerability and the strength of its institutions.

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% of GDP in 2016 from over 3% as recently as 2014 as the goods trade balance reverted to a surplus starting in 2015.

The shortfall in the current account further narrowed to 1.0% in the first quarter of 2017 and, along with net inflows of foreign direct and portfolio investments, contributed to a build-up of
gross international reserves to $123.2 billion as of end-April 2017—close to the record high of $124.6 billion reached in August 2011— which provides 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, as well as a revision in fuel subsidies.

The Indonesian government has also pursued structural economic, fiscal and regulatory reforms, although these reforms have not yet provided a significant boost to private sector investment.

Moreover, the government has demonstrated fiscal discipline against the backdrop of continued revenue pressure from lower oil and gas prices in recent years.

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. (Linda Silaen)