Indonesia is meeting with investors in London and the Middle East ahead of a possible sukuk, or Islamic bond, issue as it grapples with a weakening currency, dwindling foreign currency reserves and a gaping current account deficit.
The country set the timetable for the investor meetings even as its rupiah currency hits fresh four-year lows, with Citigroup, Deutsche Bank and Standard Chartered Bank arranging roadshows, or investor presentations, in London, Jeddah, Abu Dhabi and Dubai, a person close to the transaction told Reuters.
The deal size is yet to be decided and the offering will be part of Indonesia's $5 billion trust certificate issuance programme. In January, a senior official said Indonesia would raise $1 billion through a sukuk in the second half of 2013.
The dollar fund-raising comes at at a critical moment when the country's forex reserves have slumped to $92.67 billion, lowest since October 2010, and the rupiah tumbled to a four-year 4 year low of 10,775 on Wednesday and is now down 10.6 percent this year.
Defending the currency or supporting Indonesian assets may not be a priority at this point, even as emerging markets remain spooked by concerns U.S. Federal Reserve will start reducing its monthly bond purchases in September.
"I see the sukuk bond sale as part of their public finance programme rather than a monetary policy aimed at shoring financial markets. The timing seems preferable for a sukuk rather than a conventional bond," said Tim Condon, ING's head of Asian financial market research.
Indonesia has come to rely on conventional and Islamic bonds, or sukuk, to plug the deficit created largely by the $18 billion to $21 billion it spends on fuel subsidies annually.
Borrowing costs will certainly be higher compared with Indonesia's last sukuk issuance and also its latest conventional bond offering, with US 10-year yields having risen 120 basis points since May to 2.80 percent.
"Demand for the global sukuk will be a good barometer for investor appetite and sentiment towards the country," said Avanti Save, Barclays credit strategist.
Indonesia was until recently an emerging market darling following its elevation to an investment grade credit rating, but it has borne the brunt of the tapering-related sell-off as cracks began to appear in its economy.
Sukuk issuance, however, may get a lift by turning investor sentiment in some quarters.
"The selloff in Indonesian debt is exaggerated -- fundamentals have not deteriorated to the extent suggested by the prices," said Anthony Chan, analyst at AllianceBernstein Fixed Income who believed the market had undeservedly lumped Indonesia along with India.
"The 10-year Indonesian bonds sold off 200 basis points more than U.S. Treasuries since mid-May and that is unjustified," he said.
Indonesian 10-year rupiah bonds are yielding 8.6 percent compared with May lows of 5.4 percent. In that same period the U.S. 10-year Treasury yield is up to 2.8 percent from 1.6 percent.