Indonesia prepares first euro bond issue

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Women walk toward the entrance of Indonesia's central bank building in JakartaDeveloping countries are rushing to issue debt in euros at the fastest pace on record to take advantage of Europe’s ebullient bond market, with Indonesia the latest to prepare a debut or return to the eurozone bond market, the Financial Times reported.

The euro issuance splurge of emerging markets has been strong throughout the year, due to a drop in borrowing costs. But the European Central Bank’s move last week to ease monetary policy has poured more fuel on the rally, and could invigorate issuance activity as the eurozone bond market approaches the customary summer lull.

Indonesia has hired Bank of America Merrill Lynch, Citigroup and Deutsche Bank for its maiden euro-denominated bond sale, expected later in June, according to a person familiar with the matter.

Indonesia is joining a long line of countries that have headed back to a market that was sometimes shunned during the eurozone crisis. South Korea issued its first euro bond in eight years earlier this month, Croatia its first in three years, and in April, Brazil issued its first euro bond in nine years.

Morocco also returned to the euro market this week, raising €1 billion in a well-received deal on Friday.

In total there has already been $32.6 billion worth of euro-denominated bond issuance from the developing world so far this year, according to Dealogic. That is almost twice last year’s pace, when issuance hit a record $41.8 billion.

Indeed, the common currency’s share of emerging market bond issuance has jumped to the highest on record and is running at almost twice last year’s rate.

Aside from developing countries in and around the common currency bloc, such as Poland, Romania and Turkey, emerging markets typically issue the vast majority of their international debt in dollars. But tumbling eurozone bond yields – coupled with the falling cost of swapping euro proceeds into other currencies – has made the European bond market much more competitive for cost-conscious borrowers.

“Since the US economy is arguably at a more advanced stage of its recovery, US monetary policy is also slowly becoming less accommodative when compared to the euro area. This has resulted in bond yields in the US rising quicker than in the euro area,” Morgan Stanley said in a recent note.

“The normalisation of US monetary policy is also expected to see the dollar strengthen. These factors make a euro-denominated bond appear more attractive to an issuer,” the bank’s analysts argued.

For emerging markets, it makes sense to diversify their investor base and lessen the dependence on US asset managers. The European investor base is made up of more banks, pension funds and insurers than the US market, which offer different funding options to treasury officials at local finance ministries.

For European investors the EM rush to the euro market represents a chance to snap up higher-yielding bonds and diversify away from their sizeable holdings in domestic debt that were swelled by the eurozone crisis.

The cost of borrowing in euros can vary. Morgan Stanley points out that the yield of euro-denominated bonds issued by countries close to the eurozone, such as Poland, tend to trade below their equivalent dollar bonds, while the opposite is true for Mexico and Brazil.

 

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Reading Time: 2 minutes

Developing countries are rushing to issue debt in euros at the fastest pace on record to take advantage of Europe’s ebullient bond market, with Indonesia the latest to prepare a debut or return to the eurozone bond market, the Financial Times reported.

Reading Time: 2 minutes

Women walk toward the entrance of Indonesia's central bank building in JakartaDeveloping countries are rushing to issue debt in euros at the fastest pace on record to take advantage of Europe’s ebullient bond market, with Indonesia the latest to prepare a debut or return to the eurozone bond market, the Financial Times reported.

The euro issuance splurge of emerging markets has been strong throughout the year, due to a drop in borrowing costs. But the European Central Bank’s move last week to ease monetary policy has poured more fuel on the rally, and could invigorate issuance activity as the eurozone bond market approaches the customary summer lull.

Indonesia has hired Bank of America Merrill Lynch, Citigroup and Deutsche Bank for its maiden euro-denominated bond sale, expected later in June, according to a person familiar with the matter.

Indonesia is joining a long line of countries that have headed back to a market that was sometimes shunned during the eurozone crisis. South Korea issued its first euro bond in eight years earlier this month, Croatia its first in three years, and in April, Brazil issued its first euro bond in nine years.

Morocco also returned to the euro market this week, raising €1 billion in a well-received deal on Friday.

In total there has already been $32.6 billion worth of euro-denominated bond issuance from the developing world so far this year, according to Dealogic. That is almost twice last year’s pace, when issuance hit a record $41.8 billion.

Indeed, the common currency’s share of emerging market bond issuance has jumped to the highest on record and is running at almost twice last year’s rate.

Aside from developing countries in and around the common currency bloc, such as Poland, Romania and Turkey, emerging markets typically issue the vast majority of their international debt in dollars. But tumbling eurozone bond yields – coupled with the falling cost of swapping euro proceeds into other currencies – has made the European bond market much more competitive for cost-conscious borrowers.

“Since the US economy is arguably at a more advanced stage of its recovery, US monetary policy is also slowly becoming less accommodative when compared to the euro area. This has resulted in bond yields in the US rising quicker than in the euro area,” Morgan Stanley said in a recent note.

“The normalisation of US monetary policy is also expected to see the dollar strengthen. These factors make a euro-denominated bond appear more attractive to an issuer,” the bank’s analysts argued.

For emerging markets, it makes sense to diversify their investor base and lessen the dependence on US asset managers. The European investor base is made up of more banks, pension funds and insurers than the US market, which offer different funding options to treasury officials at local finance ministries.

For European investors the EM rush to the euro market represents a chance to snap up higher-yielding bonds and diversify away from their sizeable holdings in domestic debt that were swelled by the eurozone crisis.

The cost of borrowing in euros can vary. Morgan Stanley points out that the yield of euro-denominated bonds issued by countries close to the eurozone, such as Poland, tend to trade below their equivalent dollar bonds, while the opposite is true for Mexico and Brazil.

 

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