Apr 27, 2011

Govt. bond offered at 5.125% yield

Standard & Poor's Ratings Services yesterday assigned its BB+ senior unsecured long-term foreign currency debt rating to a proposed global unsecured bond issuance by the Republic of Indonesia (foreign currency BB+/Positive/B; local currency BB+/Positive/B; ASEAN scale axBBB+/axA-2).
The bond is expected to have a maturity of 10 years and will constitute part of the country's US$9 billion global medium-term notes program.
The ratings on Indonesia are supported by continuing improvements in the government balance sheet and external liquidity, against a backdrop of resilient economic performance and cautious fiscal management. The ratings remain constrained by Indonesia's (1) low per capita income; (2) structural and institutional impediments to higher economic growth; (3) relatively high inflation; and (4) vulnerability, albeit reduced, to external shocks, in part because of its shallow domestic capital markets.
A source close to the deal said the bond is expected to offer yield of 5.125%. "Starting from yesterday, the government has offered the bond and expected to close today," the source said. 
Positive outlook
The positive outlook on Indonesia's sovereign ratings reflects the likelihood of an upgrade if inflation is tamed while balance sheet improvements continue, likely in combination with successful implementation of parts of the administrations' fiscal, administrative, and structural reform agenda.
We may raise the sovereign ratings if inflation pressure diminishes, the external debt burden declines, the sovereign's balance sheet improves, or reforms such as subsidy rationalization suggest that fiscal and external vulnerabilities are further reduced. Conversely, a stalling of reforms or the absence of timely and adequate policy responses to renewed fiscal or external pressures would result in the ratings stabilizing or weakening.

Disclosure: No position at the stock mentioned above.

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