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Jakarta Post

Indonesia raises $930m in samurai bonds to fund pandemic response

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Fri, July 3, 2020   /   12:50 pm
Indonesia raises $930m in samurai bonds to fund pandemic response Japanese yen banknotes are pictured in this undated file photo. (AFP/File)

Indonesia has raised 100 billion yen (US$930 million) from the issuance of five-tranche samurai bonds to help the government cover the fiscal deficit and fund the coronavirus pandemic response, the Finance Ministry announced Friday.

The deal was finalized in Japan on Thursday and sold in maturities of 20 years, worth 1.5 billion yen with a coupon rate of 1.8 percent; 10 years, worth 13.4 billion yen with a 1.59 percent coupon rate; and seven years, worth 10.1 billion yen with a 1.48 percent coupon rate.

The five-year tenure is worth 24.3 billion yen with a coupon of 1.35 percent and the three-year tranche is worth 50.7 billion yen with a 1.13 percent coupon. The settlement date is set for July 8.

“The funds raised will be used to finance the budget deficit, including to fund COVID-19 relief and recovery efforts,” the ministry said in a statement. “Indonesia’s transaction is the first issuance of the sovereign Japanese yen in 2020 and the first issuance from an Asian [country] since the pandemic hit.”

The government faces the daunting task of funding the budget deficit of 6.34 percent of gross domestic product this year, with Rp 695.2 trillion ($49 billion) set aside to bolster the economy and strengthen the healthcare system.

The government is planning to offer Rp 900.4 trillion worth of sovereign debt papers in the second half of the year as debt financing swells significantly to fund the country’s coronavirus response.

It had raised Rp 630.5 trillion worth of debt papers until June this year, including $4.3 from a three-tranche US-dollar bond in April and $2.5 billion from a three-tranche global sukuk (sharia-compliant bond) last month.

The financing directorate general reported that Japanese investors responded with a strong appetite for the debt instrument, with interest coming from both existing and new investors.

“Indonesia’s achievement of successfully pricing benchmark-sized transactions, while significantly reducing the average premium for its US-dollar secondary curve, encouraged the market and proved Indonesia […] was a leading samurai bond issuer,” the Finance Ministry added.

The joint lead arrangers of the bond issuance are Daiwa Securities, Nomura Securities, SMBC Nikko Securities and Mitsubishi UFJ Morgan Stanley Securities.

Prior to the samurai bond issuance, the Finance Ministry held a non-deal financial roadshow through the internet and group calls to explain macroeconomic conditions in the country.

The government now expects full-year growth of only 1 percent under the baseline scenario in 2020 or full-year contraction of 0.4 percent in the worst-case scenario.

Fitch Ratings director for sovereigns and supranationals Thomas Rookmaker expected Indonesia's government debt ratio to swell to 38 percent by the end of the year, adding that it would still be below the BBB rating peer median of 53 percent of GDP.

"A rapid increase in public debt resulting from rising budget deficits is a negative rating sensibility from our last review when we affirmed Indonesia's rating at BBB with a stable outlook, but that was before the coronavirus pandemic," Rookmaker told The Jakarta Post in mid-June.