Indonesian companies stick to bond plans as Jokowi premium fades

Indonesian companies stick to bond plans as Jokowi premium fades
PDI-P leads the Indonesian legislative election after a quick count of polls.

INDONESIA - Indonesian companies lining up to sell at least $4 billion in bonds said on Thursday they were unperturbed by a surprising parliamentary election that dented the country's status as an emerging market favourite.

The southeast Asian nation's financial markets had rallied this year on prospects of Jakarta Governor Joko Widodo, known as"Jokowi", becoming president with a strong enough mandate to push through long-stalled reforms.

Foreign inflows into Indonesian government bonds hit $3.9 billion in the year to date, compared with $4.7 billion for all of 2013. Since May 2013, the country has recorded only three months when there was more foreign money leaving than arriving.

The premium that investors demanded to hold Indonesian 10-year bonds over the benchmark 10-year US Treasuries has narrowed by 839 basis points, or 28 per cent, since the end of January as anticipation of Jokowi's candidacy boosted reform hopes.

But early returns from Wednesday's parliamentary election showed that Jokowi's Indonesian Democratic Party-Struggle (PDI-P) will have to cut a deal with other parties in order to nominate its hugely popular candidate for president in a July 9 poll. "There will be a tempering of reform expectations for the moment from the investors' perspective," said Philip McNicholas, BNP Paribas Hong Kong based ASEAN analyst.

The notion that Jokowi will need to form a coalition to win power does not necessarily mean that his government would have to compromise on reform, according to some executives eyeing debt issues.

Indonesian state-owned gas utility firm PT Perusahaan Gas Negara, which plans to issue $1.5 billion worth of global bonds this year mainly to fund its expansion, saw the bright side of a coalition government. "This is actually positive because the opposition will be reduced and this will be good for government policies,"Corporate Secretary Heri Yusup told Reuters. "Investors are still likely to respond positively to Indonesia because the election is going on safely and our economic condition is also conducive." Other firms are also lining up issues.

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