Indonesia plans another yuan bond sale amid rupiah exchange risk

Indonesia is considering a second issuance of yuan-denominated bonds, potentially totaling 7 billion to 10 billion yuan, with maturities of three, five, or seven years, Bloomberg reported on October 22.

This follows an initial issuance in July of 7 billion yuan, which included 5.6 billion yuan in three-year bonds at a 1.9% coupon and 1.4 billion yuan in five-year bonds at a 2.19% coupon, according to Bank of China.

The July issuance marked Indonesia's first panda bond, a yuan-denominated bond issued in China's domestic market, linking Indonesia's debt service costs to the yuan-rupiah exchange rate.

While Chinese interest rates are comparatively low and the yuan's international use is expanding, the Finance for Development Lab notes that issuers face exchange-rate exposure; a weakening rupiah against the yuan increases rupiah costs for debt payments.

Indonesia's five-year government bond yield was 7.225% as of October 21, according to Asian Development Bank data, though this yield is not directly comparable to the yuan bond coupons due to different currencies and dates.