Indonesia 2014
It was seven years in the making, but Indonesia's first international bond deal since the 1997 financial crisis was well worth the wait.
The $1 billion, 10-year global benchmark enjoyed a groundswell of support, as investors flush with cash were eager to get a slice of the action. The order book reached $4 billion as accounts around the world took the chance to get involved in such a rare issuer. Such was the demand that the transaction's size was doubled from its original $500 million.
The government's main objective was to diversify its investor base and get its name back in the market. ?That is exactly what happened,? says Neil Shuttleworth, head of Asia debt syndicate at Deutsche Bank, which lead managed the deal with JP Morgan.
The transaction also vindicated the reform efforts of the Indonesian government over the past few years. Indonesia has cut its public debt-to-GDP ratio to 70% from over 100%, while narrowing the budget deficit to 1.9% of GDP in 2003. The level of interest in the bond was evident from the outset, with turnout at the roadshows exceeding expectations. In Singapore, for example, 100 to 110 accounts turned up to the presentation.
?We were surprised by the number of investors,? says Rahul Mookerjee, head of Asia debt capital markets at Deutsche Bank. ?There were two to three times more investors than usually attend a roadshow.?
Most were keen to find out the government's plans for economic and legal reform. Many took heart that technocrats and not politicians manage Indonesia's economy. ?Most people were focusing on the outlook for the economy, and the government addressed these questions well,? says Mookerjee.
At the time, Indonesia's macroeconomic situation was relatively healthy, especially compared to two or three years earlier. Interest rates were falling and the currency was strengthening, and although investors recognized that challenges remained, they were buoyed by the government's honesty and sincerity.
The issue was priced at 99.285, giving a coupon of 6.75% and a 6.85% yield. This was equivalent to 277bp over Treasuries. At that level, the transaction was tighter than any of its global comparable countries, leading some investors to complain that the deal was too expensive.
Even so, over 200 investors put in orders. The final distribution was: 35% US, 29% Europe, 36% Asia and 10% onshore. Asset managers bought 55%, banks 24%, insurance companies 8% and retail investors and others 13%. ?The government insisted that only a small amount of the deal be allocated to Indonesian investors,? says Mookerjee.
He adds that the process of picking the lead managers was one of the most ?transparent and analytically rigorous? that he had been through for a long time. ?Once they decided the firms, then they negotiated the fees ? that's different from other governments.?
Issuer: Republic of Indonesia
Date of launch: March 10, 2004
Amount: $1 billion
Maturity: 10 years
Coupon: 6.75%
Credit ratings: B2 (Moody's); B (S&P)
Lead managers: Deutsche Bank, JP Morgan