Indonesia, Southeast Asia’s biggest economy, sold $3 billion of bonds in the largest dollar debt fundraising by a developing nation this year after offering more than double the premium over U.S. Treasuries it paid in June. Indonesia sold $2 billion of 10-year notes to yield 11.75 percent, or 8.759 percentage points more than similar-maturity U.S. Treasuries, according to Barclays Plc, which along with UBS AG arranged the sale. It also sold $1 billion of five-year notes to yield 10.5 percent, 8.474 points above U.S. government debt. “Indonesia was just being realistic in accepting the higher yield given the tough market conditions,” said Goh How Phuang, a portfolio manager in Singapore at Schroder Investment Management Ltd., which oversees $158 billion. “They had to make it more attractive for investors to ensure a strong response.” The sale, twice the size of last month’s international bond sale by the Philippines, will help President Susilo Bambang Yudhoyono’s government finance its proposed 139.5 trillion rupiah ($11.6 billion) budget deficit. Policy makers in developing nations are seeking to boost supplies of foreign exchange as a deepening global recession pummels exports and prompts global funds to shun emerging-market assets. Standard & Poor’s this week cut its credit ratings for Ukraine and Latvia. ‘Attractively Priced’ The Philippines sold $1.5 billion of 10-year notes to yield 8.5 percent, or 6 percentage points more than U.S. Treasuries on Jan. 8 and Turkey, which has the same debt rating as Indonesia, the same day sold $1 billion of eight-year bonds to yield 5.01 percentage points above Treasuries. In Indonesia’s last international offering in June 2008, 10-year bonds were priced to yield 7.27 percent, 3.06 points more than Treasuries. Indonesia’s latest issue was “attractively priced,” said Anton Hauser, who helps oversee the equivalent of $1.1 billion of emerging-market debt at Vienna-based Erste Sparinvest KAG. “However, a relatively large issue size could weigh negatively on the bonds’ secondary market performance.” Hauser said he didn’t buy because of “some outflows” from his funds. The extra yield investors demand to own Indonesia’s dollar bonds instead of Treasuries has narrowed 119 basis points, or 1.19 percentage points, to 7.22 percentage points since reaching this year’s high on Jan. 15, according to JPMorgan Chase & Co. The spread averaged 1.69 percentage points in the first half of 2007, before a global credit crisis began. ‘High Spreads’ “Considering actual high spreads, there are good opportunities for investors who can discriminate between good and bad stories,” said Ernesto Bettoni, a London-based investment specialist at Fortis Investments, which oversees the equivalent of $244 billion in assets. Indonesia’s parliament approved this week a 73.3 trillion rupiah stimulus package to help the economy and endorsed the 2009 budget, paving the way for the country to sell as much as $4 billion of dollar-denominated debt. Philippine Finance Secretary Gary Teves said yesterday the nation, facing its biggest budget deficit in five years, will consider selling more debt overseas. “Countries are trying to tap debt markets as quickly as possible in case the situation deteriorates further in the second half,” said Paul Biszko, a senior emerging-markets strategist with RBC Capital Markets in Toronto. Indonesia’s gross domestic product rose 5.2 percent in the fourth quarter, the smallest increase in more than two years, and the government forecasts economic growth will slump to 4.5 percent this year from 6.1 percent in 2008. Debt from Indonesia, which raised $4.2 billion from dollar- denominated bond sales last year, is rated BB- by Standard & Poor’s and Ba3 by Moody’s Investors Service, three levels below investment grade. S&P this week cut Ukraine’s rating to CCC+, seven levels below investment grade, while Latvia’s was lowered to BB+, the highest junk rating.

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