What is going on in Asia with the dollar? Why are they so hasty in selling bonds for quick cash? Do they know something we don't? I think they see something coming on the horizon when it comes to the dollar and it losing some value. Tell me what you think. Here is a good article from Reuters.
* Sovereign does first Asian dollar bond in a month
* Yield higher than necessary, argue bankers
* Haste may have been warranted
By Neha D'Silva
HONG KONG, July 11 (IFR) - As the Republic of Indonesia claimed the laurels of reopening the dollar bond market in Asia ex-Japan, it also raised questions as to why it was so eager to raise money from international investors. The sovereign sold a US$1bn bond maturing in October 2023 on Wednesday, just three months after selling US$3bn in dollar debt that comprised another 10-year bond and a 30-year bond.
The sovereign's quick return to the market with a new benchmark had many asset managers questioning if the country was not a bit desperate for cash. "Indonesia needs the cash to replenish their depleted reserves," said one portfolio manager.
With some US$98bn in reserves in June, Indonesia does not seem to be on the verge of running out of hard currency. But just one month prior to that, the Central Bank had US$105.2bn in its reserves, so the investor's speculation is not completely unfounded.
Indonesia, however, seems more to be using the bond market as a way to mitigate macroeconomic troubles and poor budget planning than just refilling hard currency reserves.
According to local brokerage Mandiri Securitas, the government has recently revised its budget deficit estimates for 2013 to 2.4% of GDP, versus its earlier projections of 1.6%. With some 20% of the funding needs to be met in foreign markets, that means Indonesia will have to issue some US$3.7bn more this year than it had initially planned, Mandiri said.
Moody's also noted in a research report last week that rising inflation, policy tightening, and lower prices for Indonesia's commodity exports could weigh on economic growth in 2013, though real GDP growth came in above 6% for the third consecutive year in 2012.
"Everyone knows that Indonesia needs the money," said a Hong Kong-based syndicate banker.
Indeed, some speculated that the choice of an October maturity for the new bond was a trick to allow it to be reopened later in the year.
Besides that, Indonesia is looking to raise money with an Islamic bond. "They are planning to do a dollar sukuk post-summer and they wanted to finish this deal before investors go off on summer holidays," said a banker close to the deal.
COSTLY SPEED
The trouble is that, in its haste to get money, the sovereign may have paid more than necessary.
In April, Indonesia sold a US$1.5bn 10-year bond with a 3.375% coupon, its lowest ever print in conventional format at that tenor. This time, the sovereign paid a coupon of 5.375%, which with a cash price of 99.391 translated into a yield of 5.45%.
Part of that difference is due to a 100bp increase in Treasury rates since Indonesia did its last deal and a 90bp increase in the sovereign's spread, the premium investors charge for buying Indonesian bonds instead of Treasuries.
But some argue that if Indonesia had waited only one day more it might have already gotten a better deal than it did. The secondary price of the sovereign's bonds rose over US$1.5 in their first day of trading, as credit markets rallied following dovish remarks by Fed Chairman Ben Bernanke.
Bankers not involved in the transaction said this suggests that if Indonesia had done its deal on Thursday instead of Wednesday it might have paid a yield of 5.2%, a difference that adds up to savings of US$25m over the life of the bond.
Bankers on the deal dismissed the criticism saying that it is "impossible to predict the future and what if Bernanke's comments were hawkish?"
For all the arguments made by bankers that Indonesia could have gotten a lower yield, investors suggest the sovereign may have actually been smart coming out as soon as possible.
"They just want to raise dollars while they can," said another portfolio manager. He noted that benchmark rates are still trending up and that looming elections as well as the deterioration of macroeconomic fundamentals mean the yields Indonesia pays are likely to go higher, not lower.
In the long run, a banker suggested, the sovereign may actually look smart for being in a hurry. (Reporting By Neha D'Silva; Editing by Christopher Langner)
Indonesia reopens dollar market - desperation or savvy?
* Yield higher than necessary, argue bankers
* Haste may have been warranted
By Neha D'Silva
HONG KONG, July 11 (IFR) - As the Republic of Indonesia claimed the laurels of reopening the dollar bond market in Asia ex-Japan, it also raised questions as to why it was so eager to raise money from international investors. The sovereign sold a US$1bn bond maturing in October 2023 on Wednesday, just three months after selling US$3bn in dollar debt that comprised another 10-year bond and a 30-year bond.
The sovereign's quick return to the market with a new benchmark had many asset managers questioning if the country was not a bit desperate for cash. "Indonesia needs the cash to replenish their depleted reserves," said one portfolio manager.
With some US$98bn in reserves in June, Indonesia does not seem to be on the verge of running out of hard currency. But just one month prior to that, the Central Bank had US$105.2bn in its reserves, so the investor's speculation is not completely unfounded.
Indonesia, however, seems more to be using the bond market as a way to mitigate macroeconomic troubles and poor budget planning than just refilling hard currency reserves.
According to local brokerage Mandiri Securitas, the government has recently revised its budget deficit estimates for 2013 to 2.4% of GDP, versus its earlier projections of 1.6%. With some 20% of the funding needs to be met in foreign markets, that means Indonesia will have to issue some US$3.7bn more this year than it had initially planned, Mandiri said.
Moody's also noted in a research report last week that rising inflation, policy tightening, and lower prices for Indonesia's commodity exports could weigh on economic growth in 2013, though real GDP growth came in above 6% for the third consecutive year in 2012.
"Everyone knows that Indonesia needs the money," said a Hong Kong-based syndicate banker.
Indeed, some speculated that the choice of an October maturity for the new bond was a trick to allow it to be reopened later in the year.
Besides that, Indonesia is looking to raise money with an Islamic bond. "They are planning to do a dollar sukuk post-summer and they wanted to finish this deal before investors go off on summer holidays," said a banker close to the deal.
COSTLY SPEED
The trouble is that, in its haste to get money, the sovereign may have paid more than necessary.
In April, Indonesia sold a US$1.5bn 10-year bond with a 3.375% coupon, its lowest ever print in conventional format at that tenor. This time, the sovereign paid a coupon of 5.375%, which with a cash price of 99.391 translated into a yield of 5.45%.
Part of that difference is due to a 100bp increase in Treasury rates since Indonesia did its last deal and a 90bp increase in the sovereign's spread, the premium investors charge for buying Indonesian bonds instead of Treasuries.
But some argue that if Indonesia had waited only one day more it might have already gotten a better deal than it did. The secondary price of the sovereign's bonds rose over US$1.5 in their first day of trading, as credit markets rallied following dovish remarks by Fed Chairman Ben Bernanke.
Bankers not involved in the transaction said this suggests that if Indonesia had done its deal on Thursday instead of Wednesday it might have paid a yield of 5.2%, a difference that adds up to savings of US$25m over the life of the bond.
Bankers on the deal dismissed the criticism saying that it is "impossible to predict the future and what if Bernanke's comments were hawkish?"
For all the arguments made by bankers that Indonesia could have gotten a lower yield, investors suggest the sovereign may have actually been smart coming out as soon as possible.
"They just want to raise dollars while they can," said another portfolio manager. He noted that benchmark rates are still trending up and that looming elections as well as the deterioration of macroeconomic fundamentals mean the yields Indonesia pays are likely to go higher, not lower.
In the long run, a banker suggested, the sovereign may actually look smart for being in a hurry. (Reporting By Neha D'Silva; Editing by Christopher Langner)
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