IFR Asia - 08.09.2018

News

EM sell-off rocks Indonesia bonds

„ Bonds Tumbling rupiah spells trouble for sovereign, corporate bond issuers

BY FRANCES YOON

A brutal sell-off in the REPUBLIC

OF INDONESIA’s currency is raising

the stakes for the country’s

international issuers, as nervous

global investors trim their

exposure to US dollar bonds that

have been relatively resilient

during the recent emerging-

market weakness.

Six consecutive days of losses

took the rupiah to 14,940 to the

dollar last Tuesday, a level not

seen since July 1998, when the

Asian financial crisis was in full

swing.

After a 10% slump the rupiah

is now the seventh biggest loser

among the G20 currencies this

year, trailing those of Argentina,

Turkey, Brazil, South Africa,

Russia and India, according to

Thomson Reuters data.

The yield on the 10-year

rupiah government bond

jumped 50bp in five days to

8.58%, the highest since January

2016.

Indonesia’s open-market

policy, with over 40% of rupiah

government bonds in foreign

hands, often makes for volatile

currency trading in times

of global turmoil, but there

are signs that hard-currency

investors are also pulling back.

Indonesia’s 3.5% US dollar

sovereign bonds due 2028 posted

their worst week against US

Treasuries since they were issued

last December, rocketing 32bp to

a spread of 172bp last Thursday,

according to Tradeweb.

The country’s 4.35% January

2048s told a similar story,

with the yield rising 29bp to

201bp over Treasuries at 5.08%,

approaching the 5.16% record in

early May.

Indonesian five-year sovereign

CDS, which measures the cost

of protection against default,

soared 25bp in a week to 147bp,

the highest level since February

2017, Thomson Reuters data

show.

The sell-off presents a

daunting challenge for the

country, which is considering

another offshore sovereign bond

issue this year to pre-fund next

year’s requirements, as it has

done for the past three years.

“Personally, it’s concerning,”

an Indonesian finance ministry

official told IFR. “We are in

discussions on what to do with

a sovereign issue. We still have

about Rp200trn (US$13.4bn) left

in gross government securities

to issue.”

The official added: “We’ll

decide on whether to pre-fund

with a sovereign bond once next

year’s budget is finalised by the

end of October.”

Finance Minister Sri Mulyani

Indrawati is due to attend an

investor forum in Singapore

Trikomsel test 06 Chinese IPO in India 07 Qantas monetises fleet 08

Overseas duo eye Indian listings

„ Bonds/Equities Pipeline trust and first REIT plan to sell bonds and shares

BY KRISHNA MERCHANT,

S ANURADHA

Infrastructure and property

developers, including Brookfield

and Blackstone, are turning

to the Indian capital markets

to raise money through listed

investment trusts, despite rising

interest rates and a lacklustre

response to earlier listings.

Canada’s BROOKFIELD ASSET

MANAGEMENT, which owns

several infrastructure and real

estate assets in India, is in

talks with investors to list an

Indian gas pipeline through an

infrastructure investment trust

(InvIT).

The Brookfield-backed InvIT

is looking to raise a total of

Rs130bn (US$1.8bn), split

equally between debt and

equity, to fund the acquisition

of a gas pipeline from Mukesh

Ambani’s East West Pipeline,

earlier known as Reliance Gas

Transportation Infrastructure,

under a long-term take-or-pay

contract, according to people

familiar with the plans.

The InvIT is planning to raise

up to Rs65bn from bonds and

a similar amount of equity

through a private placement

of units, the people said. It

is currently hiring banks to

arrange the offering.

Separately, EMBASSY OFFICE

PARKS REIT, which is backed

by India’s Embassy Group

and US private equity firm

Blackstone, is planning to file

a draft prospectus for an IPO of

about US$1bn later this month,

people with knowledge of the

transaction have said.

The Embassy trust, which

would become India’s first listed

REIT, is also eyeing Rs35bn

from a three-year bond issue,

according to debt bankers. No

details were available on the

likely coupon range.

Brookfield declined to

comment. Reliance Industries,

also owned by Ambani, did not

respond to emailed questions

about its pipeline deal with

Brookfield.

Embassy officials refused to

comment on the company’s

financing plans. A Blackstone

spokesperson did not reply to a

request for comment.

Blackstone is buying a 55%

stake in Thomson Reuters’

Financial & Risk unit, which

includes IFR.

The planned capital raisings

come after India’s first listed

infrastructure trusts performed

poorly, dampening interest

in the format. A regulatory

rethink, however, appears to

have revived appetite among

potential issuers.

Last week, INDIA GRID TRUST INVIT

became the first such trust to

tap the bond market, taking

advantage of a rule change last

September allowing InvITs/REITs

to sell bonds to fund further

acquisitions.

Any debt raised has to be

OFFSHORE CONTAGION

WEAKNESS IN THE RUPIAH MARKET IS SPOOKING US$ CREDIT INVESTORS

Source: Thomson Reuters Eikon

70

100

130

160

5.

6.

7.

8.

Jan Feb Mar Apr May Jun Jul Aug Sep

5 y IDR govt (%) 5 y USD CDS (bp) (Right axis)