(Bloomberg) -- An Indonesian state-owned lender scrapped a planned sale of dollar bonds after a stock market rout in the country quickly spread to other asset classes.
PT Bank Tabungan Negara pulled its offering of five-year dollar-denominated Tier 2 notes which it started marketing on Tuesday, citing market volatility, according to people familiar with the matter. The bank may revisit the market again at a later stage, the people said. BTN confirmed that the transaction was postponed in a response to inquiries from Bloomberg News.
The decision came after Indonesian companies’ dollar bond spreads hit their widest level in six months on Tuesday, part of a cross-market selloff that was led by a rout in stock prices.
“It was unfortunate timing for Bank Tabungan Negara to try to issue Tier 2s during a day of massive equity volatility in Indonesia,” said Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc. “While the bank is majority government-owned, its underlying fundamentals are not particularly strong with weak asset quality and modest profitability.”
Traders said there wasn’t one root cause of the fall, pointing to factors including concerns over the populist agenda of President Prabowo Subianto and a rumor — quickly denied — that Finance Minister Sri Mulyani Indrawati was standing down. But the selloff was enough to cause damage elsewhere.
The average yield premium on dollar-denominated Indonesian corporate bonds hit around 144 basis points over Treasuries at Tuesday’s close, the highest level since September, according to Bloomberg data. They have now widened almost 16 basis points so far this month, under-performing bonds issued by companies elsewhere in Southeast Asia.
The stock market showed signs of recovery on Wednesday, with the benchmark index rising around 1% after an earlier decline. But bond traders still appear nervous: The cost to insure Indonesian debt against default widened on Wednesday, according to a trader.
Last week, Goldman Sachs Group Inc. downgraded Indonesian assets, citing rising fiscal risks from a series of initiatives by President Prabowo Subianto. The Wall Street bank lowered its recommendations on 10- to 20-year quasi sovereign bonds to neutral, after they had been among the most-favored previously.
The dollar bonds of state-owned PT Bank Negara Indonesia and state electricity company PT Perusahaan Listrik Negara were among those that faced selling pressure on Tuesday.
(Updates throughout. An earlier version of this story corrected a reference to foreign investors’ selling of government bonds.)
