By Rafael Nam
HONG KONG, Feb 27 (Reuters) - Indonesia's new bonds rallied on Friday after selling the biggest-sized global bond out of Asia in over five years, potentially encouraging more countries in the region to sell debt -- provided they pay the price.
Indonesia raised $3 billion on Thursday via a heavily-oversubscribed sale of new 5-year and 10-year bonds, marking the biggest deal out of Asia excluding Japan since Hutchison Whampoa's $5 billion sale in November 2003, according to Thomson Reuters data.
The deal was also the biggest bond sale out of Southeast Asia ever, in spite of the worst global economy in decades and a recent deterioration in sentiment towards broader emerging markets due to banking and currency woes in central and eastern Europe.
However, to get there Indonesia had to pay a significant premium to what it paid just last year -- indicating that despite increased demand for higher-yielding sovereign emerging debt, a deal from another Asian country may be neither easy nor cheap.
"Capital markets are open for business, but does that mean that implies a very successful transaction from other countries? Not necessarily. We would need to be offered a combination of attractive fundamentals and pricing," said Clifford Lau, a fund manager at Pramerica Investment Management.
Indonesia's new $1 billion bonds maturing in 2014 surged to 101.25/101.375 from a spot price of 99.276 at which they were sold, while the new $2 billion debt maturing in 2019 surged to 101.5/101.625 from a spot price of 99.455.
The sale attracted over $7.3 billion in orders, indicating that investors remain receptive to emerging sovereign debt. Philippines had received nearly four times in orders for its $1.5 billion in 10-year notes sold in January.
Emerging market countries such as Mexico, Turkey and Colombia have also sold global bonds this year, as they tap investors looking for an alternative to low-yielding government debt but unwilling to endure the volatility of global stock markets.
Still, it hasn't come cheap.
Back in January 2008, Indonesia sold a 10-year note at a yield of 6.875 percent, and in June it sold more of those bonds at a yield of 7.278 percent -- levels that are 4-5 percentages points lower than what it paid on Thursday.
Some market players speculate Indonesia may have paid too much, but others say the country did well given the volatile markets and a widening in its existing spreads.
Indonesia has also dismissed such concerns.
"We believe that the global bond issues last night were a success," said Anggita Abimanyu, head of the finance ministry's fiscal policy board.
Indonesia faced a tough choice likely to confront other emerging Asian issuers -- whether to gamble on a recovery in global markets that could potentially lower bond spreads, and hence the cost of new issuance, or get its funding done while the money is there.
That is the choice that countries such as South Korea or Malaysia that have long been rumoured to be eyeing global bond sales will also likely face.
Waiting longer has its pitfalls. It could easily backfire should there be a sudden deterioration in markets, but it also risks being lost in a flood of global debt issues, which has started to surge this year after a lull late last year.
Credit agencies are cutting their ratings in emerging markets, especially in Europe, while also turning more negative in Asia as evidenced by Standard & Poor's cut this week in its outlook for its long-term sovereign credit rating for India.
South Korea offers one such example of a missed opportunity. Right before the collapse of Lehman Brothers in mid-September 2008, the country scrapped an already advanced deal to sell global bonds, balking at the prices then being demanded by investors.
Its credit default swaps, which offer protection against defaults and is also one of the measures used to price new debt, was trading at 130 basis points a year, but is now trading at 415 basis points.
Although the debate over whether Southeast Asia's biggest economy paid too much is likely to continue, for now, Indonesia can now afford to sit back. The finance ministry said it will not tap an up to $4 billion global medium term note programme this year after already raising $3 billion of that on Thursday.
"It's done. This is because looking ahead, things are likely to get worse and the spread is likely to widen, which make it costlier" for the borrower, Indonesia's Abimanyu said. (Additional reporting by JAKARTA bureau; Editing by Kazunori Takada)