The Republic of Indonesia launched a €1 billion ($1.37 billion) seven-year bond on Wednesday, the country’s first in the euro space, achieving an order book that far exceeded expectations.
The sovereign received €6.7 billion of orders from more than 400 accounts or an oversubscription multiple of 6.7 times — the largest ever in its overall bond history, according to a source close to the transaction. The previous biggest oversubscription multiple was 6.5 times for Indonesia’s 2011 4% Islamic bond or sukuk.
“ROI chose to issue in euros to diversify its investor base, and also to increase pricing references for both the Indonesian sovereign and Indonesian corporates in euro,” the source told FinanceAsia.
Because of the size and quality of the order book, ROI was able to tighten the pricing of its 144A/Reg S-registered offering from an initial price guidance of Treasuries plus 225bp area to 195bp, resulting in a 30bp tightening. The yield is 2.976%.
Additionally, Baa3/BB+/BBB- rated ROI paid a minimal new issue premium for its euro offering — 5bp more than where it could have come in US dollars — when compared to its outstanding dollar-denominated paper expiring in 2021, which was trading at a Z-spread of 190bp.
The premium is similar to where a European issuer such as Baa1/BBB/BBB- rated Russia would’ve come, and far less than any other Asian or Latin American sovereign, added the source close to the deal.
ROI’s latest offering is the first benchmark euro-denominated bond from a South or Southeast Asian sovereign since the Republic of Philippines last came to market with a €500 million 10-year note in 2006, according to Bloomberg data.
High quality investors
Investors from the UK and Asia each subscribed to 24% of ROI’s papers, 19% went to German and Austrian investors, the US accounted for 18%, Swiss 4% and the rest of Europe 11%, according to a term sheet seen by FinanceAsia.
Fund managers purchased 65% of the notes; while 15% went to financial institutions and private banks; central banks and sovereigns took 12%; and insurers and pension funds 8%.
The first half of 2014 has seen a record pace of issuance from the Asia ex-Japan G3 currency bonds space, with about $102 billion of gross issuance, of which $77 billion was investment-grade and $25 billion high-grade, according to Goldman Sachs in a recent report.
On a full-year basis, the US investment bank expects G3 notes from Asia ex-Japan to exceed last year’s record of $139 billion, predicting a total gross issuance of $159 billion.
“With December traditionally a quiet month for new issuance activity, there would need to be over $10 billion of new issuance a month in the next five months in order to match the net issuance volume in the last two years,” Kenneth Ho, credit analyst at Goldman Sachs, said.
Bank of America Merrill Lynch, Citi and Deutsche Bank were the joint bookrunners of ROI’s transaction. Bahana Securities, Danareksa Sekuritas and Mandiri Sekuritas were the co-managers of the deal.
Elsewhere
Elsewhere in the region, Korea National Oil Corporation raised $800 million — a $250 million tap of an existing $500 million bond expiring in January 2019 and a new $550 million 10-year note, according to a term sheet seen by FinanceAsia.
The A1/A+/AA- rated note obtained a total order book of more than $4 billion from more than 250 accounts and, as a result, KNOC was able to tighten both tranches by about 15bp to 17.5bp. The tap priced at Treasuries plus 65bp, while the 10-year note priced at Treasuries plus 77.5bp.
Goldman Sachs forecasts $83 billion worth of redemptions in the next 18 months, and expects one-third of that to come from the Korean investment-grade space, followed by China and Hong Kong. The bank adds that about $20 billion will mature in the second half of this year.
“Given the sizeable investment-grade redemptions, and our expectation that net issuance is unlikely to be significantly above [the] last two year’s levels, this supports our view that spreads will grind tighter by the end of the year,” Ho said.
Barclays, BNP Paribas, Citi, Deutsche Bank and Societe Generale were the joint bookrunners of KNOC’s transaction.
