Business

Wed Jun 18 00:43:03 PDT 2008

By Rafael Nam

HONG KONG, June 18 (Reuters) – The prices of Indonesia’s new sovereign bonds rose on Wednesday after the deal, completed in the early hours, was increased by nearly 50 percent to accommodate demand stimulated by the generous premiums on offer.

The $2.2 billion transaction, involving the reopening of three existing bonds, topped Indonesia’s $2 billion debt sale in January even though it came at a time when its budget deficit is worsening and inflation is surging.

The bonds rose by about 0.5-0.75 of a point in secondary market trade. The offer was three times oversubscribed after Indonesia offered yields that were higher than in its January deal and above what the bonds traded at before the new sale.

That helped offset the negative economic picture, which is not unique to Indonesia, analysts said.

"Inflation and increasing fiscal deficits are happening everywhere, so Indonesia is not really the underperformer compared to other countries," said Clifford Lau, a fund manager at Pramerica Investment Management in Singapore.

The country sold $300 million of additional 6.75 percent bonds maturing in 2014 <455780AP1=RRPS> at a yield of 6.694 percent, or 302.7 basis points over corresponding U.S. Treasuries, according to a term sheet and market source.

That was below the 6.75 percent guidance given on Tuesday.

An additional $900 million in 6.875 percent bonds maturing in 2018 <ID034054053=RRPS> was sold at a yield of 7.278 percent, or 306.1 basis points over Treasuries. Guidance was 7.315 percent

The largest tranche was $1 billion in 7.75 percent bonds maturing in 2038 <ID034054061=RRPS> at a yield of 8.154 percent, or 337.1 basis points over Treasuries. That compared with guidance of 8.178 percent.

Indonesia had sold $1 billion each of the 10-year and 30-year bonds in January at yields of 6.95 percent and 7.75 percent respectively.

The lead managers for the sale were Credit Suisse <CSGN.VX>, Deutsche Bank <DBKGn.DE> and Lehman Brothers <LEH.N>. Lehman was also involved in the January sale.

Indonesia will use the money to help plug a budget deficit seen at 1.8 percent of gross domestic product this year, pushed up by record high oil prices, even after it cut subsidies and raised fuel prices by an average 29 percent in May.

As elsewhere in Asia, the Indonesian authorities are fighting inflation, with the central bank expected to continue raising its key interest rate <BIPG> from the current 8.50 percent.

Annual inflation could accelerate to 12.7 percent at the end of the second quarter, the Indonesian central bank said this month, after it hit a 20-month high of 10.38 percent in May.

Indonesia’s new debt has been rated BB-minus by Standard & Poor’s and Ba3 by Moody’s, both three notches below investment grade.

(Additional reporting by Daniel Bases in New York; Editing by Alan Raybould)

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