-- Bonds would help finance Indonesia's budget deficit
-- Deal would be the second Asian sovereign offshore issue so far this year
By Natasha Brereton and Ditas Lopez Of DOW JONES NEWSWIRES
SINGAPORE -(Dow Jones)- Indonesia is seeking proposals from banks for a global bond offering, preparing for what could be Asia's second sovereign debt deal to hit the international market so far this year. (source)
Banks have until Friday to submit their proposals, people familiar with the government's plans said Wednesday.
The request for proposals didn't indicate the size, currency, or tenor of the issuance the government was considering, one of these people said.
It's not clear yet if Indonesia will proceed with an offering right away. But the government, over the course of the year, is looking to raise $3 billion to $4 billion through the sale of global bonds, including an Islamic bond, people familiar with its borrowing plans said.
Indonesia, one of Asia's frequent sovereign issuers in the international bond market, would use the proceeds to plug a hole in its budget that is expected to reach 1.8% of gross domestic product in 2011.
The issue would make Indonesia the second Asian sovereign to approach the international market for funding this year, after the Philippines sold a 25-year global peso bond worth $1.25 billion in January.
Indonesia has in recent years tended to tap the global market early in the year. Some investors have speculated it would put this year's issuance plans on ice following a recent selloff in emerging-market debt, that was aggravated in Indonesia by fears that the central bank wasn't moving fast enough to address inflationary pressures.
The cost of insuring Indonesia's bonds against default and restructuring has increased in recent weeks. On Thursday, the spread on five-year credit default swaps on Indonesian dollar bonds stood at 154 basis points, up from around 140 basis points two weeks ago and around 130 basis points at the start of the year.
In an interview with Dow Jones Newswires Monday, Bank Indonesia Governor Darmin Nasution stressed the central bank--which has left its benchmark overnight interest rate unchanged since August 2009 despite a surge in consumer prices--wasn't behind the curve, and that market conditions wouldn't be a deterrent to debt issuance.
Moody's Investors Service last month upgraded Indonesia by one notch to Ba1, with stable outlook, lifting the credit rating to just below investment grade in an endorsement of the country's progress in fostering economic growth and stabilizing the political climate.
Moody's ratings are now on par with the BB+ ranking assigned by Fitch Ratings, but one notch above Standard & Poor's BB rating, with a positive outlook.
The Indonesian government has previously signaled that it will rely less on global bond issuance and instead raise more funds in the domestic bond market.
Indonesia sold $2 billion in 10-year global bonds in January last year and the government said it would issue a similar amount of conventional global bonds this year.
The government could also issue $1 billion in global sukuk--which it cancelled last year--and Samurai bonds, of which it sold the equivalent of $742 million in 2010, according to people in the government.
If Indonesia comes to the market soon, it wouldn't be unexpected and the bonds would attract strong demand, analysts said.
"The markets are expecting a deal since it is part of their previously communicated borrowing plan," said Krishna Hegde, a Singapore-based credit analyst at Barclays Capital.
"The borrowing cost for U.S. dollar bonds is likely to be competitive versus the onshore bonds since U.S. Treasury yields remain low from a historical context and spreads are tight," he said.
Analysts including Hegde said Indonesia's much-awaited international bonds are likely to be denominated in U.S. dollars and could come with a single tranche of 10 years, or possibly two tranches with maturities of 10 and 30 years to create new benchmarks.
Indonesia's existing 2020 dollar bonds are the closest to 10-year paper and its longest bond has a tenor of 38 years.
"If you look at the current outstanding external debt curve, there is scope to create a new 10-year benchmark as also a 30-year benchmark," Hegde said.
There is speculation that the Philippines may return to the global market, with a U.S. dollar bond offering, later this year. Other Asian governments expected to tap the market in the coming months include Sri Lanka, Vietnam and further out on the horizon, Mongolia.
-By Natasha Brereton, Dow Jones Newswires and Ditas Lopez, contributing to Dow Jones Newswires; +65-6415-4044; natasha.brereton@dowjones.com
-I Made Sentana contributed to this article
Source : http://www.automatedtrader.net/real-time-dow-jones/44366/-indonesia-sends-request-for-proposals-for-bond-offering_sources - Feb 02, 2011
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