Indonesia Short-Lists 7 Banks For Global Bond - Sources

-- Indonesia short-lists seven banks as potential managers for its planned global bond

-- Final decision on lead managers expected next week

-- Could lead to second Asian sovereign bond to hit the international market this year

Indonesia has short-listed seven banks as potential managers for a global bond, a planned deal that is attracting interest from investors looking to bet on bright prospects for Southeast Asia's largest economy over the longer term. 

Barclays Capital, Citigroup, Deutsche Bank, HSBC, JP Morgan, Standard Chartered Bank and UBS have been chosen as possible managers of the sovereign's next global bond sale, people familiar with the matter said Thursday. 

Indonesian Finance Minister Agus Martowardojo later confirmed that the government had short-listed seven banks, although he declined to name them. 

The government will make a decision on the arrangers next week, once the banks in the running have completed presentations to Indonesian officials, two people said. 

"Investors will welcome another dollar Indonesian sovereign bond as the country is benefiting from rapid economic growth and improving fundamentals, save for a bit of rising inflation," said Scott Bennett, head of Asian credit at Aberdeen Asset Management Asia Ltd. 

"Its rating is one notch away from investment grade and investors are speculating as to when it gets that recognition. Those who are optimistic believe that it could happen this year," said Bennett, who manages $1.5 billion at the firm. 

Moody's Investors Service last month upgraded Indonesia by one notch to Ba1, with stable outlook, in an endorsement of the country's progress in fostering economic growth and stabilizing the political climate. Moody's ratings are now on par with the BB+ ranking assigned by Fitch Ratings, but one notch above Standard & Poor's BB rating, with a positive outlook. 

Moody's said in a report Thursday the economy is experiencing "increasing dynamism," and greater foreign direct investment flows, thanks to policy and administrative reforms. That kindled hopes that Indonesia could soon gain its investment-grade credentials. 

Aninda Mitra, senior analyst at the rating agency and author of the report, said that Moody's stable outlook on Indonesia takes into account the gradual deepening of its capital markets and a recent proposal for the creation of a bond stabilization fund. 

"Over the near- to medium-term these developments could begin to enhance the government's onshore debt finance-ability," Mitra said. "And if accompanied by financial and price stability and robust FDI inflows, they may also provide an uplift to the sovereign rating toward an investment-grade level." 

Indonesia's proposed bond could make it the second Asian sovereign to approach the international market for funding this year, after the Philippines sold a 25-year global peso bond worth $1.25 billion in January. 

The government--which frequently targets overseas investors--would use the proceeds from the bond to plug a hole in its budget that is expected to reach 1.8% of gross domestic product in 2011. 

Some investors had speculated the country would delay this year's issuance plans until later in the year following a recent selloff in emerging-market debt, that was aggravated in Indonesia by fears its central bank wasn't acting fast enough against a surge in inflation.

Foreign investors sold $1 billion of Indonesian government bonds in a two-week period in January, sending bond yields up sharply and the stock market down 11% at one point.

Since Bank Indonesia raised interest rates from a record low last Friday--its first move since August 2009--and signalled it would use a stronger rupiah to curb inflation, however, investor sentiment toward the country has perked up again. 

The cost of insuring Indonesia's bonds against default or restructuring has eased back somewhat after soaring in recent weeks. On Thursday, the spread on five-year credit default swaps on Indonesian dollar bonds stood at 151 basis points to 154 basis points, down from a peak of 165 basis points on Jan. 31 but still some way from around 130 basis points at the start of the year. 

The Indonesian government has recently indicated that it will rely less on global issuance and instead raise more funds in the domestic bond market.

But it is still looking to raise $3 billion to $4 billion over the course of 2011 through the sale of global bonds, including an Islamic bond, people familiar with its borrowing plans have said. 

Finance Minister Martowardojo indicated earlier this week the planned U.S. dollar-denominated bond issue could be smaller than its previous offerings. Indonesia sold $2 billion worth of 10-year dollar-denominated bonds in January 2010. Source: Dow Jones