The Republic of Indonesia (RoI) launched its third fund raising in the global bond market in 2013, this time pricing on September 11 a US$1.5 billion sukuk offering in which it had to pay a higher yield than its previous foray in the market.
The deal completed RoI’s funding requirements for the year. The sovereign issued the Shariah-compliant notes in 5-1/2 years to yield 6.125%, which was inside the initial price guidance of 6.375%. It previously tapped the sukuk market in November 2012, printing a 10 year offering for US$1 billion, paying a record low yield of 3.30%.
The RoI first accessed the sukuk market in April 2009, pricing a US$650 million issue for five years at a yield of 8.80%.
The offering attracted an order book in excess of US$5.5 billion from 290 accounts, which illustrates that there is a long-term investor base in this asset class. In terms of geographic distribution, 40% of the bonds were allocated in Asia, including 15% in Indonesia, 24% in the US, 20% in the Middle East (including Islamic investors) and 16% in Europe. It was a remarkable achievement on the back of significant-sized emerging markets’ (EM) trades from Russia and South Africa.
By type of investors, the biggest buyers were funds with 51%, followed by banks with 34%, central banks and sovereign wealth funds 7%, private banks 4% and insurance companies 4%.
The latest sukuk brought to US$5.5 billion the total amount of borrowings the RoI has raised from the US dollar bond market this year, having sold 10-1/2 year bonds amounting to US$1 billion in July and a dual-tranche offering of 10 years and 30 years totaling US$3 billion in April.
In the July deal, the sovereign likewise coughed up a higher yield than its earlier fund raising, paying 5.45% against 3.50% in April for the 10-year tranche. The first two transactions were launched in the conventional bond market.
The transaction is the largest single tranche sukuk from any Asia sovereign issuer and it equaled the largest single tranche sukuk from Asia with the Malaysian state-owned oil company Petronas which priced its deal in 2009.
Standard & Poor’s assigned the sukuk below investment grade rating of BB+ to reflect the economy’s low per capita income, a relatively weak policy environment and rising external leverage. The RoI was among the EMs hit hard during the sell-off in June following expectations that the US Federal Reserve will taper off its quantitative easing measures, which saw capital flowing out from this once favoured investor destination.
On September 12, Bank Indonesia (BI), the central bank, raised the main policy rate by 25bp to 7.25% to defend the rupiah. This is the second rate hike announced by BI in two weeks and brought to 150bp the cumulative rate hikes since June this year. This comes as the rupiah continued to weaken, even though most of the other EM currencies have rebounded.
The sukuk were issued through Perusahaan Penerbit SBSN Indonesia III, a special-purpose vehicle that is fully-owned by the RoI as part of its expanded US$5 billion sukuk trust certificate programme.
Citi, Deutsche Bank and Standard Chartered were the joint bookrunners for the transaction, while Bahana Securities, Danareksa, CIMB Bank, First Gulf Bank and Qatar National Bank acted as co-managers.
