The Finance Ministry said this week it will offer 1 trillion rupiah ($112 million) of sukuk on Oct. 5, with maturities of five years to 20 years and coupons ranging from 8.8 percent to 10.25 percent. The government sold 246 billion rupiah of sukuk on July 13, 75 percent less than planned, with debt due in 2030 priced to yield 9.94 percent, compared with 9.66 percent for similar-maturity conventional debt. The government, which rejected bids as high as 10.75 percent, also failed to sell notes at an auction on July 27.
“The main problem in sukuk auctions is liquidity,” Handy Yunianto, a fixed-income analyst at PT Mandiri Sekuritas in Jakarta, a unit of Indonesia’s largest lender, said in an interview yesterday. “The investors will be demanding a premium of as much as 50 basis points” over non-Islamic debt, he said.
Southeast Asia’s largest economy, home to more than 192 million Muslims, is seeking to develop its Islamic finance industry to catch up with Malaysia, the world’s biggest sukuk market. Issuance of Islamic bonds from Asia may reach $2.1 billion in the fourth quarter, or about 60 percent of the volume announced in the Persian Gulf, data compiled by Bloomberg show.
Indonesia’s Finance Ministry is seeking to spur growth in the market after sales dropped 9 percent in the first four months of the year from 2009, government data show. The Religious Affairs Ministry, which manages money collected from Muslims to fund pilgrimages to Mecca, will buy 2 trillion rupiah of the debt in a private placement next month, Rahmat Waluyanto, director-general of the Debt Management Office, said in an interview in Jakarta yesterday.
Underperformance
Twenty-year conventional debt from Indonesia outperformed holders of sukuk in the past quarter. Indonesia’s 10.5 percent non-Islamic debt due August 2030 returned 14.6 percent, compared with a 13 percent gain in Islamic notes maturing in March 2030. Yields on conventional bonds dropped 137 basis points, or 1.37 percentage point, to 8.48 percent, while the sukuk yield fell 114 basis points to 8.65 percent over the same period.
Indonesia also aims to sell its second global Islamic bond in the first half of 2011, after postponing the plans on expectations domestic issuance would be sufficient to meet a budget deficit, Waluyanto said. The government estimates the gap will widen to 2.1 percent of gross domestic product this year from 1.6 percent last year.
Dollar Sales
Indonesia, rated BB by Standard & Poor’s, raised $650 million in its first dollar sukuk sale last year. The bonds maturing in April 2014 handed investors a 4.7 percent return this quarter, data compiled by Bloomberg show. The yield, which was as high as 8.63 percent in April 2009, fell to 2.72 percent.
Malaysia’s 3.928 percent dollar sukuk, rated A- by S&P, gained 4.5 percent this quarter. The yield on the securities dropped 86 basis points to 2.66 percent over the same period, according to prices from the Royal Bank of Scotland Group Plc.
Shariah-compliant bonds, which pay returns from assets to avoid breaking the religion’s ban on interest, returned 5 percent this quarter, according to the HSBC/Dubai US Dollar Sukuk Index, while debt in developing markets gained 8 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows. Global sales of sukuk fell 23 percent to $10.9 billion in 2010, data compiled by Bloomberg show.
Indonesia has issued 139.2 trillion rupiah of all types of government bonds so far this year, or 85.7 percent of its target, Waluyanto said.
Book Building
The finance ministry may negotiate rates with potential investors through so-called book-building rather than in an auction to achieve lower yields, Dahlan Siamat, director of Islamic financing, said in an interview on July 8.
“Sukuk is not that liquid,” Edhi Santoso Widjojo, president director at PT AXA Management Indonesia, who manages $1.1 billion of assets, said in an interview from Jakarta yesterday. He said he would buy only if returns are attractive.
The ministry raised 15.07 trillion rupiah selling sukuk in the first four months of the year, according to its debt management office. It sold 16.55 trillion rupiah in the whole of 2009. Malaysia issued 15 billion ringgit ($4.7 billion) in five sukuk sales until July this year, government data show.
Indonesia’s Islamic banking assets totaled $8 billion at the end of last year, 2.9 percent of its total, Mulya Siregar, a director of Islamic banking at the central bank, said in an Aug. 17 interview. Malaysia’s $93 billion of Shariah-compliant assets account for 19.6 percent of the industry, according to Bank Negara Malaysia’s website.
“The government will continue to add to the number of sukuk issuances to further boost the liquidity in the secondary market,” Waluyanto said. The Religious Affairs Ministry, which last bought 336 billion rupiah of sukuk on Aug. 26, will probably buy more from the Finance Ministry next year, he said.
To contact the reporters on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net; Khalid Qayum in Singapore kqayum@bloomberg.net.
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.
Source : http://www.bloomberg.com/news/2010-09-30/indonesia-revives-sukuk-market-two-months-after-failures-islamic-finance.html - Sept 30, 2010
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