REFILE-Rating hopes boost Indonesia appeal
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By Kit Yin Boey
SINGAPORE, Nov 18 (IFR) - International investors made a beeline to two Indonesian sovereign-related Global deals last week, lured by a rare opportunity to make a play on the country's widely expected upgrade into investment grade territory from the current Ba1/BB+/BB+.
The Republic of Indonesia's USD1bn seven-year sukuk and the quasi-sovereign Perusahaan Listrik Negara's USD1bn 10-year Global gathered a combined book of USD13bn - an impressive figure, all the more so given the crumbling credit market sentiment triggered by the European sovereign funding crisis.
Interest in the Indonesian growth story has been strong this year as the three main rating agencies upgraded their ratings on the sovereign to just a single notch below investment grade. Expectations are that a promotion to that much sought after rank will happen over the next 12 to 18 months, with Fitch likely to look at its rating in the first quarter of the year.
Indonesia has been a magnet for foreign funds, investors attracted by its healthy economy which is expected to grow by 6% in 2011. Foreign exchange reserves will hit USD116bn by the end of the year and credit growth in 2012 is expected to rise as the economy continues to expand.
These are attractive numbers for foreign funds, whose ownership of rupiah-denominated government bonds peaked at Rp249trn in July this year before a huge sell-off in global markets saw that drop to Rp218trn in September when the European liquidity crisis exploded.
Since then, foreign holdings have bounced back to Rp221.5trn as of November 15, well ahead of the Rp195.7trn held at the end of last year, and accounting for nearly a third of the total volume of outstanding government paper.
Although any sudden outflow of foreign capital would necessarily hurt the economy, the Indonesian government has put in a series of measures to limit the impact, with Bank Indonesia ready to intervene if required. The government is estimated to have about Rp70trn (USD7.75bn) to support the bond market. Continua...