No more demonetisation woes
Bonds Indian issuers ready offerings after RBI stops mopping up liquidityBy KRISHNA MERCHANTIndian issuers are lining up
to sell rupee bonds after a
surprise end to the central
bank’s liquidity operations sent
benchmark yields plunging.
The yield on the 10-year
government security dropped
a sharp 15bp on Monday
to 6.89% from 7.05% after
the Reserve Bank of India
unexpectedly cancelled a
Rs100bn (US$1.5bn) scheduledsale of bonds via open market
operations.
The RBI has been selling
bonds to mop up excess
liquidity stemming from last
year’s demonetisation exercise,
and the cancellation sent a
signal to the market that yields
were too high.
“The latest move signalled
the discomfort of the Reserve
Bank of India and the
government over the recent
hardening in yields, and placeda cap on the rates curve in the
near term,” said DBS in a note
dated November 21.
Indian bonds enjoyed a short-
lived rally on November 17
after Moody’s upgraded India’s
sovereign credit rating to Baa
from Baa3, but bond yields
shot back up before the market
close that day.
The central bank has
conducted a series of bond
sales, totalling Rs900bn, since
the beginning of this year toabsorb excess liquidity in the
system.
This led to a supply glut
in the market, driving bond
yields higher, even as bank
liquidity returned to normal
levels one year after the RBI’s
shock decision to remove most
of the country’s bank notes
from circulation overnight. The
yield on 10-year government
securities rose almost 60bp to
7.05% as of November 17 from
6.44% at the end of July.
“These bond sales had
continued, despite a sharp fall in
the liquidity surplus to Rs0.7trn,
compared to Rs4trn-Rs5trn
earlier this year,” said DBS.First test for Komodo pricing
Bonds Jasa Marga meets investors ahead of Global rupiah debutBy KRISHNA MERCHANT,
DANIEL STANTONIndonesia’s biggest toll road
developer is marketing the first
global rupiah bonds, testing
international appetite for a
product that promises to open
a new source of funding for the
country’s corporate sector.
JASA MARGA, rated Baa3/BB+
(Moody’s/S&P), is meeting
investors in Asia, London and
the US from November 23 to 29
ahead of a planned 144A/Reg
S offering of so-called Komodo
bonds.
HSBC and Mandiri Securities
are joint global coordinators.
They are also joint bookrunners
with Deutsche Bank and Standard
Chartered.
A successful debut is
expected to pave the way
for others to follow suit, but
analysts warn that the outcome
of the deal will depend on
pricing. Foreign investors
already have easy access to
local currency bonds, and must
reckon with a currency that has
declined 2.6% against the US
dollar since September 11.
“The currency risk will
probably be the biggest driver
of pricing after credit risk, sothe recent IDR depreciation will
be a reminder to investors that
currency risk is structurally
acute,” said Xavier Jean, senior
director at S&P, adding that a
coupon below 10% would be an
achievement.
“A protective hedge like a
cross-currency swap could cost350bp to 500bp and investors
would probably pass on that
cost to Jasa Marga.”
Raphael Mok, senior country
risk analyst at BMI Research,
part of the Fitch Group, said
that the rupiah was expected to
weaken further in the coming
months as the US raised rates.So, rupiah-denominated bonds
needed to offer a premium of
4.2%-4.3% over similarly rated
US dollar corporate bonds to
attract investors.
“Overall, we believe that
interest will be quite high
given that Indonesia’s external
and fiscal positions haveNews
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