CAPITAL MARKETS - SUKUK - Indonesian sukuk shunned as inflation quickens

Indonesia’s highest inflation rate in almost two years is discouraging investors from the nation’s Islamic bonds as HwangDBS Investment Management Bhd. says policy makers will raise borrowing costs at least once more this year. (source)

The yield on the government’s 11.8 percent rupiah sukuk due in 2015 climbed 112 basis points this year to 8.23 percent on Feb. 7, the highest level in almost two months, after the central bank increased interest rates, according to data compiled by Bloomberg.

The rate falls to 1.21 percent after accounting for January’s 7.02 percent rise in consumer prices, compared with a real yield of 8.46 percent a year ago.

While the yields are 465 basis points, or 4.65 percentage points, more than similar-maturity ringgit sukuk in Malaysia, overseas investors are slowing purchases of the debt this year. Fund managers at HwangDBS, PT Bank Danamon Indonesia and AmInvestment Management Sdn. said they would consider buying the sukuk should yields climb to compensate for the inflation risk.

“We are not going to purchase Indonesian bonds until the end of the rate cycle,” Esther Teo, who helps oversee the equivalent of almost US$3 billion of Islamic and non-Islamic funds at Kuala Lumpur-based HwangDBS, said in an interview Tuesday. The central bank may raise borrowing costs by another 150 basis points to 8.25 percent, she said, without specifying a timeframe.

Bank Indonesia increased its benchmark reference rate on Feb. 4 for the first time in more than two years, raising it 25 basis points to 6.75 percent. Foreign investors owned Rp 196.5 trillion ($22 billion) of the country’s debt as of Feb. 8, compared with Rp 195.76 trillion at the end of December, according to data from the Finance Ministry. The Jakarta Composite Index of stocks lost 2.3 percent since the decision.

The central bank will keep its inflation forecast for 2011 at 4 percent to 6 percent, Deputy Governor Hartadi Sarwono said on Feb. 7, the same day a government report showed the economy expanded in the fourth quarter at the fastest pace since the three months ended December 2004.

Malaysia’s 3.473 ringgit-denominated Islamic notes due in 2015 offer a real rate of return of 1.38 percent after consumer prices climbed 2.2 percent in January, the most since May 2009.

Suryani Omar and Khalid Qayum, Bloomberg, Jakarta / Singapore | Fri, 02/11/2011 6:09 PM | Business

A | A | A | 

Source : http://www.thejakartapost.com/news/2011/02/11/indonesian-sukuk-shunned-inflation-quickens.html - Feb 11, 2011