The Finance Ministry has canceled a plan to issue US dollar-denominated bonds for local investors (domestic dollar bonds) in the second half of this year, citing concerns over limited onshore dollar supply
he Finance Ministry has canceled a plan to issue US dollar-denominated bonds for local investors (domestic dollar bonds) in the second half of this year, citing concerns over limited onshore dollar supply.
'The onshore liquidity of US dollars may not be ample enough, so we are not quite sure that the market's absorption would be satisfactory if we launch [domestic dollar bonds] again,' Robert Pakpahan, the head of the Finance Ministry's debt management office, said on Tuesday.
'Besides, our rupiah bonds will be sufficient as a funding source,' he added.
The Finance Ministry initially planned to sell domestic dollar bonds in October this year, following an offering in March.
At that time, the new instrument, code named USDFR001 with a coupon rate of 3.5 percent, generated bids from domestic investors worth US$599 million, more than the government's indicative target of $250 million.
This would be the government's second cancelation of foreign currency bonds issuance, after Robert previously stated that the government would shelve the plan to issue Japanese yen-denominated Samurai bonds, which were initially scheduled for the second half of this year.
Nevertheless, the Finance Ministry will stick to its plan to issue sharia-compliant dollar bonds (global sukuk) in the second half, he said.
Indonesia reaped $1.5 billion from the latest global sukuk sales in September last year, when demand for the 5.5 year sharia-compliant notes with a 6.1 percent yield exceeded $5.6 billion, meaning the offering was more than three times oversubscribed.
Robert said he was not worried about increasing competition in the global sukuk market, with countries from the UK to Luxembourg tabling plans to issue sharia-compliant notes regularly.
'In terms of volume, the supply of sukuk is still too small to trigger market activity, given the ample liquidity of Islamic funds available globally,' he said.
I Made Adi Saputra, a fixed-income analyst with BNI Securities, said the government's decision to cancel the issuance of domestic dollar bonds was understandable given the successful issuance of global bonds and eurobonds earlier this year.
Indonesia raised $5.6 billion from the combined sales of euro- and dollar-denominated notes to offshore investors earlier this year, with both offerings being more than four times oversubscribed.
'Dollar liquidity seems to be ampler among offshore investors compared to domestic investors,' Made said in a phone interview on Tuesday. 'Demand for global sukuk should also be good, given the historically strong interest among overseas investors for our foreign currency bonds.'
Nevertheless, he noted that the government, by canceling the issuance of domestic dollar bonds and Samurai bonds this year, may be taking a more careful stance with regards to issuing bonds in foreign currencies, especially as it had borrowed a huge amount from dollar bonds and Eurobonds.
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