In one of the largest fund raisings launched in a year by a sovereign out of Asia in the offshore bond market, the Republic of Indonesia (RoI) raised a total of US$6.7 billion equivalent in 2014.

It was among the first issuers to kick off the bond offering from the region for the year as it priced on January 7 a two-tranche issuance totaling US$4 billion, representing the largest Asian sovereign deal in the past 10 years. The Reg S/144A transaction, which matched the RoI’s entire issuance in conventional US dollar market in 2013, was equally split at US$2 billion each for 10 years and 30 years.

The deal generated a total order book of US$18 billion – the largest ever in RoI history – from over 700 high quality global accounts, enabling the sovereign to upsize the deal from the initial amount of US$3 billion and priced the transaction at the tight end of the guidance. “We’ve decided to front load our offshore bond issuance as we were depressed at the start of the year because of the difficulties we faced in June 2013,” says Robert Pakpahan, director-general of debt management at Indonesia’s ministry of finance.

Then in July, the RoI tapped the euro bond market for the first time, raising e1 billion for seven years. As the first euro-denominated sovereign issuance from Southeast Asia since 2006, the sovereign sought to capitalize on the constructive global market tone, in particular the robust euro market, as well as the huge investor interest with a well-timed intra-day transaction.

“The transaction was good for us because 4% of our outstanding debt was denominated in euro,” says Pakpahan. “It also diversifies our investor base and we will continue to look at this market.”

The deal garnered e6.7 billion worth of demand from over 400 accounts with 58% of the paper allocated in Europe following strong reception from the traditional euro investors. A total of 158 new accounts in this transaction did not participate in the US$4 billion trade in January, of which 126 were from Europe.

Rounding off RoI’s foray in the G3 bond market in 2014 was the US$1.5 billion sukuk that it priced in early September, which achieved a significantly cheaper rate than its conventional bonds and it paid no new issue premium.
In executing this 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.

“We started our non-deal roadshow in Malaysia and attracted a very enthusiastic response,” recalls Pakpahan. “We also spent a lot of time in the Middle East as we felt that the Islamic countries would be more interested in buying our sukuk – and in the end they really supported us.”

Indeed, 35% of the sukuk was distributed to investors in the Middle East and other Islamic countries, who otherwise cannot participate in the conventional bond issue.

For 2015, RoI will borrow 245 trillion rupiah (US$19.6 billion) to help plug the budget deficit, which is equivalent to 2.2% of the GDP. And with maturing bonds on the way, it may need to issue in gross terms around 430 trillion rupiah.

Pakpahan says 80% of the amount will be raised in the local currency bond market and 20% in the offshore market. That ratio has not changed in the past three to four years as the RoI tried to maintain a disciplined approach to reduce its exposure to foreign currency risk. At present, 44% of Indonesia’s foreign debt is denominated in foreign currencies.

In raising a large portion of the government funding requirements in the local currency bond market, the finance official notes the robust activity as they conduct 43 auctions a year. The secondary market is also active with 19 trillion rupiah to 20 trillion rupiah worth of bonds being traded daily.

Pakpahan says about 38% of the government securities are now being held by non-resident investors. While such a big proportion maybe a cause for concern, he is confident that the government is well-prepared to meet any eventualities. He says the ministry of finance, Bank Indonesia and other financial regulatory authorities have enhanced their coordination to ensure that the government can act accordingly, and that a crisis management protocol and a bond stabilization framework are in place to respond appropriately when these non-resident investors withdraw from the market.