Indonesia to sell up to $1bn in samurai in 2010

Indonesia plans to raise up to $1bn this year in its second samurai bond offering ever as it tries to diversify sources of funding and eventually lower the costs of managing Southeast Asia's largest economy.

Expectations that interest rates in Japan will stay low for an extended period due to the country's still depressed economy are also encouraging to Indonesia, which last July raised ¥35bn ($378.9m) from its debut samurai offering.

Chief Economics Minister Hatta Rajasa told reporters on Monday that Indonesia expects to raise between $750m and $1bn in samurai bonds this year under a guarantee from Japan Bank for International Cooperation (JBIC).

"It indicates that (the government thinks) yen interest rates would remain favourable, and secondly the risk of currency mismatch would be lower given the government's foreign debt in yen is significant," said Purbaya Yudhi Sadewa, an economist at Danareksa Research Institute.

Rajasa did not elaborate on other details such as the timing or maturities of the planned bonds.

Indonesia's public foreign debt amounted to around $80bn as of November last year, of which around $30bn worth was denominated in yen, according to the latest finance ministry data.

Indonesia, which plans to to borrow 175.1trn rupiah ($19.19bn) in 2010 to fund its budget deficit and repay maturing bonds, has said it would diversify the sources of borrowing to spread the risks and costs.

Indonesia sold 10-year samurai bonds in July with a partial guarantee from the state-backed JBIC. The amount was less than the ¥50bn to ¥75bn expected due to investor caution over credit risk after the global financial crisis.

Jakarta could issue $3-4 bn worth of global bonds later this month, with a dollar-demoniated tranche possibly being priced as early as this week, a source close to the deal said.

International ratings agencies keep Indonesian debt below investment grade but funds are flowing into the country on hopes of strong economic growth, led by solid domestic demand and strong exports of commodities and resources from palm oil to coal.

Indonesian bonds, stocks and currency have gained sharply since last year on investors' hopes for further growth-friendly reforms after the re-election of President Susilo Bambang Yudhoyono for a second five-year term.