By Lester Pimentel and Lilian Karunungan Feb. 26 (Bloomberg) -- Indonesia plans to sell dollar- denominated bonds due in 2014 and 2019 in international markets today, testing demand for emerging-market debt as a deepening global recession curbs investors' risk appetite.
The notes will be priced early today in New York, according to an e-mail sent to investors by Barclays Plc, which along with UBS AG is arranging the sale. The issue will be a benchmark offering, which typically means at least $500 million, according to a person familiar with the transaction, who declined to be identified because terms aren't set. Indonesia joins other emerging-market countries including Brazil, Mexico and the Philippines that have tapped international credit markets to fill budget shortfalls as the global recession hurts exports. Singapore today announced its economy shrank an annualized 16 percent in the last quarter, the most in at least 33 years, as overseas sales tumbled. "Countries are trying to tap debt markets as quickly as possible in case the situation deteriorates further in the second half," said Paul Biszko, a senior emerging-markets strategist with RBC Capital Markets in Toronto. "It doesn't surprise me that Indonesia is trying to issue." Indonesia's parliament yesterday approved a 73.3 trillion rupiah ($6.1 billion) stimulus package and endorsed the 2009 budget, paving the way for the country to sell as much as $4 billion of dollar-denominated debt to finance a budget deficit of 139.5 trillion rupiah, or 2.5 percent of gross domestic product. Yield Spreads Indonesian officials met with investors starting on Feb. 2 to drum up interest for the latest debt sale. The extra yield investors demand to own the nation's dollar bonds instead of U.S. Treasuries has narrowed 83 basis points, or 0.83 percentage point, to 7.58 percentage points since reaching this year's high on Jan. 15, according to JPMorgan Chase & Co. The spread averaged 1.69 percentage points in the first half of 2007, before a global credit crisis began. Indonesia's 6.75 percent dollar bond due March 2014 yielded 9.27 percent yesterday, or 7.26 percentage points more than similar-maturity U.S. Treasuries, according to data compiled by Bloomberg. It's 6.875 percent note due January 2018, the note with the closest maturity to the 10-year mark, yielded 10.69 percent, a premium of 7.97 percentage points over U.S. debt. Shrinking Premium Southeast Asia's largest economy last raised $2.2 billion in June via a sale of six-year, 10-year and 30-year debt. The government sold $300 million of bonds maturing in March 2014 with a 6.75 percent coupon. It sold $900 million of notes due in January 2018, paying 6.875 percent. The remaining $1 billion of debt maturing in January 2038 paid 7.75 percent. Investors now demand 6.5 percentage points in additional yield to buy emerging-market dollar-denominated bonds instead of Treasuries, according to JPMorgan Chase & Co.'s EMBI+ index. The premium reached a six-year high of 8.65 points on Oct. 24 as risk aversion mounted after Lehman Brothers Holdings Inc. declared bankruptcy in September. Debt from Indonesia, which raised $4.2 billion from dollar- denominated bond sales last year, is rated BB- by Standard & Poor's and Ba3 by Moody's Investors Service. Both ratings are three levels below investment grade and on a par with Turkey. Rahmat Waluyanto, director general of Indonesia's debt management office, and Timothy Cuffe, a spokesman for Barclays Capital in Hong Kong, declined to comment on today's sale. Boost Spending The government plans to boost spending to sustain Indonesia's economic growth. Analysts forecast expansion will slow to 4.8 percent this year from 6.1 percent in 2008, according to a Bloomberg survey. ING Financial Bank NV forecasts dollar debt sales by developing nations will rise as much as 68 percent this year to a four-year high of $65 billion as a tumble in commodity exports drains foreign reserves and drives down currencies. Commodities, as measured by the UBS Bloomberg CMCI Index, plunged 52 percent from a July record as the global recession crimped demand for raw materials. Crude oil in New York recently traded at $42.72 a barrel, 71 percent less than last year's all- time high of $147.27.
