Indonesian borrowers are selling a record amount of dollar bonds, as the country’s strong fiscal track record in recent years fuels optimism on its ability to weather the COVID-19 crisis.
Including the sovereign, note sales in the US currency from Indonesia this year total more than $15 billion, a year-to-date record and almost three-times the tally for the same period in 2019. In one of the most recent offerings, state-owned miner PT Indonesia Asahan Aluminium sold $2.5 billion of notes on Monday, with demand exceeding the issuance size by six times.
Indonesia has run a small budget deficit over many years and foreign currency reserves were at a near record level at the start of 2020. That gives it some cushion amid the massive challenges all countries, and emerging markets in particular, face in the pandemic. The nation’s issuers have also benefited from a rally in credit markets in recent weeks, after stimulus from central banks around the world boosted sentiment, particularly for safer issuers.
“We are generally constructive on Indonesian assets,” said Sean Jutahkiti, a portfolio manager and director of Asian corporate research at Neuberger Berman. While citing some concerns about weaker Indonesian credits, state-owned enterprises should perform relatively well given their scale and funding access, he said.
A number of Indonesian government-backed companies are preparing to sell dollar bonds, said Indonesia’s State-Owned Enterprises Minister Erick Thohir last week. State-owned PT Bank Rakyat Indonesia for one is targeting a $1 billion bond sale in the third quarter.
Indonesia’s state-owned or state-backed companies should not have a problem tapping the offshore bond markets as long as they are willing to pay up, according to Nicholas Yap, an analyst at Nomura Holdings Inc.
Dollar securities from the Indonesian sovereign and quasi-sovereign notes have returned about 9% since markets globally bottomed around March 23, though on a year-to-date basis they have lost almost 4%, a Bloomberg Barclays index shows.
Of course, the unprecedented global health crisis is challenging all government finances, and risks remain for Indonesia. The country has had a cap of 3% on its budget deficit since 2003, though it removed that recently to fund economic measures to combat the virus impact. Indonesia saw the outlook on its BBB investment-grade rating revised to negative from stable last month by S&P Global Ratings.
“We don’t expect Indonesia to be downgraded to junk from the rating agencies,” said Artur Piasecki, a portfolio manager at BlackRock Inc. “We do expect some spread volatility due to broader EM sentiment, flows volatility and higher supply from sovereign and quasi-sovereign in coming quarters” but Indonesian sovereign credit should perform well in the medium term, he said.