Indonesia's Kangaroo Bond Sale a Tricky Call for Local Funds
Australia's sovereign Kangaroo market isn't large and Indonesia's issuance is not aligned with the more well known supranational debt from developed markets, according to Betashares Capital Ltd. Funds may also be unable to hold the bonds due to Indonesia's low investment grade credit rating, according to Jamieson Coote Bonds Pty.
'An EM kangaroo bond doesn't exactly fit neatly into the traditional Australian bond sectors,' said Chamath de Silva, head of fixed income at Betashares in Sydney, who may buy the bond if it gets included in major indexes. 'That said, if the concession is attractive, I'm sure local real money might be tempted.'
It points to a tricky debt sale should Indonesia follow through on its plan as it seeks to diversify funding sources and deepen ties with Canberra. It would be just the second emerging-market sovereign to issue Australian dollar debt in a market that typically sees developed issuers like the Canadian provinces and supranationals such as the European Investment Bank.
The planned issuance comes as Kangaroo sales hit A$41 billion this year, on track to top a record A$61 billion worth of deals last year, according to data compiled by Bloomberg. It follows South Korea issuing an Australian dollar bond last year.
To be sure, it may be attractive for global managers who are navigating turbulent markets amid concern over US fiscal spending and Treasuries.
The gap between Indonesia's 10-year dollar bond and its Treasury equivalent has narrowed since May as the government pledged to maintain its debt and deficit caps. The spread fell to its lowest this year last week after Bank Indonesia eased policy to help spur growth.
'We'll be following the deal closely,' said Joshua Rout, a portfolio manager at Franklin Templeton in Melbourne, who invests in Indonesian debt. 'Why wouldn't you invest in bonds from debt-conscious sovereigns issuing at a spread over US Treasuries at a time when US fiscal policy looks wildly unsustainable?'
The issuance is likely to be targeted at sovereign wealth funds and reserve managers rather than Australian funds seeing emerging-market exposure given liquidity may be low, said Prashant Newnaha, a senior Asia-pacific rates strategist at TD Securities in Singapore. But 'its clear there is a significant pool of Australian dollars to tap,' he said.
While Indonesia's planned offer is interesting, it would not meet the rating requirement of a number of our portfolios, said James Wilson, a senior portfolio manager at Jamieson Coote in Melbourne. The Southeast Asian nation is ranked Baa2 at Moody's Ratings, the second lowest investment grade.
--With assistance from Prima Wirayani.
(Updates with comment from Franklin Templeton in eighth paragraph.)
More stories like this are available on bloomberg.com
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