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Robust demand for Indonesia's Samurai bonds
The first sales of Japanese yen-denominated âSamuraiâ bonds in three years generated strong demand from investors in Asiaâs second-largest economy as Indonesia successfully raised Â¥100 billion (US$807 million) from selling the debt papers to plug its budget shortfall
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he first sales of Japanese yen-denominated 'Samurai' bonds in three years generated strong demand from investors in Asia's second-largest economy as Indonesia successfully raised ¥100 billion (US$807 million) from selling the debt papers to plug its budget shortfall.
It was also the first time that the Indonesian government sold the Samurai bonds without the guarantee of the Japan Bank of International Cooperation (JBIC), which protected Japanese investors against risks of default.
From total sales of ¥100 billion, non-JBIC guaranteed bonds account for 45 percent, with the rest of the notes being guaranteed by the bank.
'We initially targeted that the unguaranteed bonds would only account for 20 percent of total sales, but the demand was so high that we decided to raise [the portion of non-JBIC guaranteed notes] to 45 percent,' Finance Minister Bambang Brodjonegoro said Tuesday.
'This means that Japanese investors have grown more comfortable with our bonds,' he said.
On Tuesday, the Finance Ministry sold three types of Samurai bonds with three-year, five-year and 10-year maturity dates, with the JBIC guaranteeing the longer-tenor notes maturing in 10 years.
Bonds guaranteed by the JBIC came in lower yields, indicating safer investment for investors. The Indonesian government, however, is obliged to pay premiums for the bank for the facility, thus facing higher borrowing costs.
The yield for the three-year and five-year Samurai bonds stood at 1.08 percent and 1.38 percent, respectively. Meanwhile, the yield for the 10-year notes guaranteed by the JBIC stood at 0.91 percent.
Fitch Ratings rated Indonesia's yen-denominated notes at BBB- while Moody's Investors Service handed them a Baa3 rating, both the lowest levels in their respective investment grade categories.
'Japanese investors tend to be more conservative, normally opting for bonds with at least a single A rating, which is why a guarantee is favorable,' explained Loto Srinaita Ginting, director of government bonds at the Finance Ministry's financing and risk management office (DJPPR).
'However, at the end of the book-building, the appetite was significantly strong, so that the investors demanded a full allocation of unguaranteed bonds,' she noted.
The offering was oversubscribed as total incoming bids for the three types of Samurai bonds hit ¥127.9 billion, Loto said, adding that the government hoped to issue yen-denominated notes regularly to boost Indonesia's statute among Japanese investors.
Indonesia has issued Samurai bonds four times since they debuted in 2009. The last offering was in 2012 when it raised ¥60 billion (at that time equal to $750 million) from selling yen-denominated notes maturing in 10 years, with coupon yields standing at 1.13 percent.
In 2012, the yield for Samurai notes was 30 basis points over yen swaps, the same as the 10-year notes sold on Tuesday.
Foreign currency bonds issued by the Indonesian government have been in high demand among offshore investors due to their attractive returns and the country's strong economic fundamentals.
On July 24, the government reaped ¤1.25 billion ($1.4 billion) from selling euro-denominated debt papers in an offering that generated bids nearly double the targeted amount.
'The Indonesian government has demonstrated access to international capital markets even during previous periods of heightened global risk aversion,' Moody's analyst Atsi Sheth wrote in a note analyzing Indonesia's Samurai bonds issuance, distributed to clients on Tuesday.
