Updates with order book size in headline and paragraphs 1 and 3, final price guidance in paragraphs 4-5

By Rae Wee and Yantoultra Ngui

SINGAPORE, June 11 (Reuters) - A unit of Indonesia's sovereign wealth fund Danantara has garnered more than $4.6 billion in orders for its debut dollar bond sale, according to an order book update seen by Reuters, in a major test of foreign investor appetite amid growing challenges in Southeast Asia's largest economy.

Danantara Investment Management is looking to raise about $1 billion from the sale, split equally between five and 10-year tranches, three sources with knowledge of the matter said.

Investor orders for the bonds had exceeded $4.6 billion by Thursday evening in Asia, including $425 million of interest from the deal's joint lead managers, the update showed.

The demand allowed Danantara Investment Management to tighten final price guidance to 5.35% for the five-year notes and 5.95% for the 10-year notes, according to a separate updated term sheet seen by Reuters.

That was 35 basis points tighter than the initial guidance of around 5.70% for the five-year notes and about 6.30% for the 10-year notes, based on an earlier term sheet.

All the sources declined to be named as they were not authorised to speak to the media. Danantara did not respond to an emailed request by Reuters for comment.

INVESTORS COOL ON INDONESIAN ASSETS

The debt sale comes at a crucial time for Indonesia, as investors, worried about a free-falling rupiah IDR= and President Prabowo Subianto's populist policies, cool on Indonesian assets.

Bank Indonesia on Tuesday raised the benchmark interest rate by 25 basis points in a rare off-cycle move to 5.50% to try to stabilise the rupiah after the currency hit a series of record lows.

Concerns are also mounting over Danantara's expanding mandate, with the sovereign wealth fund most recently tasked with becoming the sole exporter of palm oil, coal and ferroalloys from as early as September under a newly established unit.

Danantara was launched by Prabowo in ​February 2025 and reports directly to ⁠the president.

The country's sovereign dollar debt due in 2036 455780EJ1= was last trading at 5.6%, while state firm Pertamina's dollar debt due in 2031 traded at 5.27% 69370PAL5=, based on LSEG data.

NOTES EXPECTED TO BE ISSUED ON JUNE 18

The pricing for the Danantara bonds is expected to be fixed later on Thursday. The notes are expected to be issued on June 18.

Proceeds from the dollar bond sales will be used for general corporate purposes, including investments and refinancing existing debt, according to the sovereign wealth fund's marketing term sheet.

The bonds are set to be issued under its $5 billion global medium-term note programme, and are expected to be rated "Baa2" by Moody's and "BBB" by S&P and Fitch.

Citigroup C.N, DBS DBSM.SI, HSBC HSBA.L, Mandiri Securities and Standard Chartered STAN.L have been hired as joint bookrunners and joint lead managers for the deal, the term sheet showed.