Indonesia Pays More Than Philippines in $2 Billion Bonds Sale

Jan. 13 (Bloomberg) -- Indonesia sold $2 billion of 10-year bonds at a higher yield than last week’s sale by the Philippines, after scaling back the offering and cancelling plans to sell 30- year debt.

The government sold 10-year notes to yield 6 percent, or about 2.28 percentage points above U.S. Treasuries, Rahmat Waluyanto, director general of the debt management office at the finance ministry, said in a text message. Demand was 2.3 times the amount on offer, he said. The Philippines, whose bonds carry the same BB- rating as Indonesia from * STORY * PHOTO * VIDEO * Standard & Poor’s, sold $1.5 billion of 2020 securities last week at 5.67 percent, having attracted orders for more than six times that amount.

While corporate bond returns are off to the best start to a year sinc* STORY * PHOTO * VIDEO * e 1998, demand for developing nations’ debt is ebbing after Mexico, Poland, Turkey and the Philippines sold $8.8 billion of overseas debt before Indonesia’s attempted sale. Holders of Indonesian debt, including Aberdeen Asset Management Plc and Vegagest SGR SpA, said last week that the nation would need to offer higher yields as a rally in emerging-market bonds slows after the biggest gains in six years.

Indonesia was “too confident of the absorption potential of the market,” said Cornel Bruhin, a bond manager in Zurich at Clariden Leu AG, which owns Indonesia’s 2014, 2037 and 2038 bonds and oversees the equivalent of $152 billion of assets. “The Philippines profited from first-mover status.”

Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for the sale. Barclays spokesman Timothy Cuffe, Citigroup spokesman James Griffiths and Credit Suisse spokesman Adam Harper declined to comment yesterday. Indonesia initially planned to sell between $3 billion and $4 billion of debt, people familiar said.

Finance Minister

Finance Minister Sri Mulyani Indrawati, a 47-year-old named Finance Minister of the Year by Euromoney magazine in 2006, was seeking to rely less heavily on rupiah bond sales to fund a budget deficit forecast to reach 98 trillion rupiah ($10.7 billion) this year, equal to 1.6 percent of gross domestic product. A 30-year debt sale would also have allowed her to extend the payment period for the nation’s debt.

“Obviously the headline was bad that they had to pull one tranche,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. “It makes it seem as though they didn’t have a very good read on the market. I think it’s high-yield issuance indigestion.”

Last week’s Philippine debt sale came a day after Turkey got orders worth triple the $2 billion in dollar bonds it offered. After that response, managers of Indonesia’s sale “could be forgiven for reaching for the stars,” said Condon.

Rally Slowing

Confidence ebbed as Pacific Investment Management Co., the world’s biggest bond fund, said last week it was “highly unlikely” developing nations’ dollar debt would perform as well as last year, when the JPMorgan Emerging-Market Bond Index Plus index returned 26 percent. Poland sold 3 billion euros ($4.3 billion) in debt and Mexico $1 billion, draining funds available to buy Indonesia’s offering amid the busiest start to a year for developing nations’ overseas bond sales in at least a decade.

“Trying to do $4 billion right now is a bridge too far for the market,” said Edwin Gutierrez, a portfolio manager who oversees $5 billion in emerging-market debt for Aberdeen in London. “The market has seen other big deals struggle.”

Philippine Advantage

Indonesia can’t count on as strong demand for its dollar debt as the Philippines, where remittances from citizens abroad make up 10 percent of the economy, said Desmond Soon, vice- president for fixed-income at DBS Asset Management Ltd., a unit of Southeast Asia’s largest lender, which oversees $20 billion.

“On all the fundamentals, the story is more robust in Indonesia,” said Soon. However, the Philippines is able to sell its securities at a lower yield than Indonesia because of “a lot of dollars from overseas workers,” he said

Indonesia fared better than its neighbors in the economic slump, as growth in the $514 billion economy accelerated last quarter for the first time in a year. President Susilo Bambang Yudhoyono, 60, who won re-election in 2009, aims to boost the country’s expansion to more than 7 percent from an average of 5.1 percent last decade.

Sri Mulyani has still lowered her funding costs over the past year. Indonesia’s 11.625 percent dollar debt maturing March 2019 yielded 5.84 percent yesterday and returned more than 50 percent since they were sold on Feb. 27 to yield 11.75 percent, or 8.759 percentage points more than U.S. government debt. Similar-maturity rupiah debt yields 9.55 percent.

Best Performers

Indonesia’s dollar bonds were the third-best performing in the region, after Pakistan and India, giving investors a return of 45 percent in the past year, according to indexes compiled by HSBC Holdings Plc. Debt of the Philippines returned 22 percent.

Investors were demanding as much as 8 percent yields for the 30-year debt, compared with a prevailing yield closer to 7 percent so the government “ditched it,” said Chia Woon Khien, head of currency and interest-rate strategy for Asia outside of Japan at Royal Bank of Scotland Group Plc in Singapore.

The government raised 7.5 trillion rupiah from sales of local-currency debt at an auction yesterday, more than the 5 trillion rupiah it originally sought.

“Indonesia is now much more confident of its currency stability and credit standing,” Chia said.