Indonesia plans a second panda bond of up to 10 billion yuan as it faces MSCI downgrade risk

Indonesia is seeking to raise as much as 10 billion yuan, or $1.5 billion, through a panda bond sale^1,2. The sale would mark the country’s return to China’s onshore debt market². The bond could be sold in November⁵.

A panda bond is yuan-denominated debt sold in China’s onshore market⁶. Indonesia sold 7 billion yuan in its debut panda bond sale in July, and the new plan is a follow-up to that issue^3,6. “We have space to offer foreign currency bonds in the fourth quarter,” an Indonesian official said³.

The planned offering of up to $1.5 billion is under consideration rather than final, according to the official’s account³. The target of 10 billion yuan would be larger than the July debut^3,4.

Why it matters to investors

The sale comes as Indonesia confronts the risk of an MSCI downgrade^1,4. MSCI is threatening to push the country out of emerging markets, and Jakarta is returning to the panda market as it faces that threat⁷. Indonesia’s plan aims to bolster its position in Asian markets as the downgrade threat looms, according to one account⁴.

Cost is a draw. Indonesia’s Chinese loans carry a coupon of about 2%, which one analysis called a fraction of what the country pays⁷. The loans look cheap, but the full calculation is more complicated than the headline rate suggests⁷.

Indonesia is not alone. International borrowers are turning to yuan bond markets as funding costs diverge between currencies⁸. For those borrowers, that difference has made the panda and dim sum bond markets increasingly attractive⁸.

For investors, a sovereign raising money in China’s onshore market while it faces possible removal from an emerging-market index shows how funding sources are shifting for borrowers under pressure^2,7.

What to watch

The first markers are the final size of the sale, up to 10 billion yuan, and whether it comes in November as planned^2,5. The official’s reference to space for foreign currency bonds in the fourth quarter leaves room for other issuance as well³.

The second is MSCI’s decision on Indonesia’s market status, which hangs over the country while it raises money in China^4,7. The price Indonesia achieves on the new bond, against the roughly 2% coupon on its Chinese loans, will show whether the cost advantage holds^1,7.