Indonesia is preparing its second panda bond sale of the year. Officials met investors in Shanghai on Thursday for a potential offering of between 7 billion and 10 billion yuan, and Suminto, director general of budget financing and risk management at the finance ministry, confirmed the indicative range in response to press queries, putting the sale in the fourth quarter. Bloomberg reported the deal could be marketed from November through early December, with possible maturities of three, five and seven years.
The rationale is funding cost and diversification. “The cost of funds for panda bonds is relatively lower and China’s financial markets remain fairly stable amid current global financial market dynamics,” Suminto said, adding that yuan issuance supports the government’s efforts to diversify instruments and expand the investor base. The planned sale follows a maiden panda offering in July, when Indonesia raised 7 billion yuan.
The timing is not incidental. Indonesia’s equity market has been under pressure since MSCI warned that the country’s emerging market status was in jeopardy, raising the prospect of large passive outflows, and Bank Indonesia has faced sustained pressure to tighten to support the rupiah and local bonds, a story this site covered on October 20. Funding a share of the deficit in onshore yuan, at lower cost and to a different investor base, reduces the amount Jakarta must raise from the markets currently repricing its risk.