ADB raises 1.2 trillion rupiah for new offshore Indonesian issue

ADB addresses tenor mismatch with longest local currency bond offering, and the length of the maturity should support the development of the local currency bond market

The Asian Development Bank (ADB) has raised 1.2 trillion rupiah (US$84 million) from a new issue of offshore rupiah-linked bonds.

The transaction, announced on March 12, was structured as a 15-year fixed rate bond maturing in March 2034, making it the longest tenor local currency bond ever issued by ADB. Previously, ADB had issued 10-year and 11-year bonds in renminbi, Indian rupees and rupiah, but longer maturities had proven elusive.

ADB treasurer Pierre van Peteghem says the issuance not only address the maturity mismatch, but also establish a benchmark for other issuers to follow. “The growth of local currency bond markets is of strategic importance to developing countries in Asia,” he says. “But the challenge often remains in sourcing funding with sufficient tenor to support ADB’s long-dated loans.

ADB has supported the development of the capital markets in the region since 1970, having issued in multiple currencies and formats.

Denominated in rupiah, but settled in US dollars, the bond issue pays a semi-annual coupon of 7.80%. The bonds are placed 70% in Europe and 30% in Americas, and are distributed among institutions, banks and retail investors. J.P. Morgan acted as the sole lead manager for the transaction.

Proceeds from the bond offering will be used to support ADB’s local currency lending in Indonesia. In 2017, ADB committed US$2.035 billion in sovereign and non-sovereign loans, technical assistance and grants to Indonesia, which is among ADB’s largest sovereign borrowers.

While ADB is a regular borrower in the mainstream international bond markets, it has also led issuance in developing Asia as part of its efforts to promote the domestic bond markets as an alternative funding avenue to bank lending.

In February this year, it raised 5.2204 billion pesos (US$100 million) from a new issue of local currency bonds in the Philippines. ADB has issued bonds in the Philippine domestic capital market in 2005 and 2007, but the latest offering was the first time it has mobilized Philippine peso funding from international investors through a currency-linked structure – bonds denominated in a local currency, but settled in US dollars. The bonds pay a fixed interest rate of 5.25% and have a final maturity of four years.

Earlier in January, ADB raised 30.4688 billion tenge (US$80 million) from two new issues of local currency bonds in Kazakhstan. The landmark dual-tranche deal incorporated a highly-tailored structure adopted to reflect the terms of the underlying loans that are to be funded with the proceeds.

The final maturities of the bonds are five years and seven years, with an early redemption call option from the third and fifth years, respectively. The bonds pay a floating interest rate linked to the Kazakhstan consumer price index, the first time ADB adopts such a structure in either mainstream or local currency borrowing.

In addition, the bonds were auctioned and listed on the Kazakhstan Stock Exchange and settled through the Kazakhstan Securities Depositary—a first domestic market transaction for the ADB in the country.

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