The Republic of Indonesia (RoI) managed to raise new funding at a significantly cheaper rate when it tapped the sukuk market for US$1.5 billion.

The sovereign on September 2 priced the Reg S/144A 10-year deal at 4.35%, or at the tight end of the final guidance of 4.40% area (+/- 5bp) and 27.5bp inside the initial guidance of 4.625% area.

The pricing was likewise much tighter compared with the 10-year tranche of US$2 billion bonds when the RoI tapped the conventional bond market in January this year. That deal was priced to yield 5.95% with a coupon of 5.875%.

In terms of comparables, the RoI has an outstanding 2022 sukuk, which were trading at around 412bp on a yield basis in the secondary market. If extended in terms of the rate curve to a new 10-year, it will result in a fair value of around 435bp to 440bp, indicating that it got away with no new issue premium despite printing a reasonably large size at US$1.5 billion.

The 2022 sukuk had a record low pricing of 3.30% when the RoI tapped the market for US$1 billion.

In executing the latest sukuk offering, the RoI did a good job in conducting a roadshow in the middle of August, which put them in a strong position to be among the first issuers to tap the market after the summer holiday. It served them well to avoid the surge of bond supply and take advantage of the resurgence of market activity.

In doing so, it attracted a total demand in excess of US$10 billion from about 390 accounts, representing the largest ever order book for any sukuk transaction for RoI.

Through this transaction as well, the sovereign managed to achieve its objective of further diversifying its investor base as 35% of the bonds were distributed to investors in the Middle East and other Islamic countries, who otherwise cannot participate in the conventional bond issue. The rest of the paper was sold in Asia 30%, including 10% in Indonesia, the US 20% and Europe 15%.

By type of investors, fund managers accounted for 57%, banks 28%, central banks, sovereign wealth funds and supranationals 13% and others 2%.

CIMB Investment Bank, Emirates NBD, HSBC and Standard Chartered acted as the joint bookrunners and lead managers for the transaction.