The Indonesian Government seized on the low yields in the European market in the run-up to the country’s finely balanced presidential election to diversify its funding sources with the country’s first euro-denominated sovereign bond.
A week before the poll, and six months after doing a record US$4bn print in the US dollar market, Indonesia turned to euro investors, knowing that either an electoral stalemate or the need for new approvals could mean delays for its funding plans.
An early lead in the polls for outsider Joko Widodo, perceived as the most business-friendly choice, had evaporated and a close result would likely lead the losing party to challenge it through the courts, which could have taken months to resolve.
Indonesia’s finance ministry opted for certainty and was rewarded with a strong response from overseas investors looking to add a new name to their portfolios. At the same time, it took advantage of the low yields available in the euro market and broke away from its reliance on US dollar funding.
This was Indonesia’s debut in the euros and the first such offering from a sovereign in South or South-East Asia since the Philippines in 2006. Following positive feedback from a roadshow in continental Europe, the seven-year offering was announced at a price guidance to yield around 225bp over mid-swaps, and the book built quickly.
Indonesia later revised the guidance to 195bp–200bp over mid-swaps, and priced at the tight end for a 2.875% coupon and reoffer yield of 2.976%. The deal size was set at €1bn after the deal drew orders of €6.7bn from 400 investors.
While it was a difficult time to be in the market, the pricing was only around 5bp higher than for its outstanding 2021 dollar bonds, had the country chosen to swap the proceeds. Excess demand from the US and Asia allowed the leads to squeeze investors on pricing, while still drawing in the European accounts they had targeted.
The offering served its purpose to introduce Indonesia to a wider range of investors and diversifying its bondholder base. European accounts took around two-thirds of the issue, as did fund managers. This was in stark contrast to the sovereign’s dollar deal in January, when European investors had been allocated less than 20% of the notes.
Indonesia has become not only Asia’s most frequent sovereign issuer over the past few years, but it has also turned itself into one of the smartest. The country’s first trade was another example of its thoughtful approach to the global capital markets.
Bank of America Merrill Lynch, Citigroup and Deutsche Bank were joint bookrunners, with Bahana, Danareksa and Mandiri were co-managers.
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