Indonesia mulls dollar bonds as Turkey crisis deepens rout

JAKARTA: As a sell-off in Indonesian rupiah debt persists, the government is weighing a global dollar bond offering as an option to bridge the nation’s budget deficit, according to a finance ministry official.

The dollar bond sale plan “is in the government’s worst-case scenario” if domestic securities market continues to be volatile, Scenaider Siahaan, the ministry’s director of debt portfolio and strategy, said by phone on Monday. “That would be a conditional response. We will first assess the situation, whether or not things will turn for the better,” he said.

The rout, renewed by the losses in Turkey, has sent the benchmark bond yield soaring to a 20-month high as foreign investors dumped emerging market assets. Indonesia is set to raise 10 trillion rupiah (US$684.5mil) from a debt auction yesterday and any signs of low investor interests would be a factor in its consideration, Siahaan said.

The government, which has met 63% of its 2018 net borrowing target, still needs to raise 144 trillion rupiah, finance ministry data show. Foreigners own almost 40% of Indonesia’s sovereign debt.

Indonesia’s local-currency debt and dollar bonds diverged in trading yesterday. More than 20 of its dollar securities in a Bloomberg Barclays index advanced, with the nation’s 4.35% bond due in 2048 up 0.53 US cents on the dollar to 92.9 as of 9.44am in Hong Kong, according to data compiled by Bloomberg.

Meanwhile, the benchmark local-currency debt continued to be sold, with the yields rising to 8.012%, the highest since December 2016.

Prior to the latest sell-off, Western Asset Management Co and other investors have said they were looking at buying opportunities in Indonesia’s dollar debt given the government’s pro-active approach to the crisis. The central bank has raised the benchmark policy rate by 100 basis points since the middle of May.

Budget financing has become more expensive with the 10-year bond yield jumping almost 170 basis points this year, and the rupiah continuing to slide, according to Siahaan.

The rupiah fell for a third day against the dollar to 14,618, the lowest since October 2015. President Joko Widodo will hold a cabinet meeting to discuss measures to strengthen foreign reserves this evening, the government said.