www.thejakartaglobe.com - The yield premium for Indonesia’s dollar-denominated Islamic bonds over
Malaysia’s dropped by the most in a year this month as falling oil
prices eased the burden on the budget and made room for economic
stimulus.
The spread between Indonesia’s 8.8 percent Islamic
debt due April 2014 and Malaysia’s 3.928 percent note due June 2015
narrowed 33 basis points in June to 56 basis points. The yield on the
Indonesian securities fell 41 basis points, while the Malaysian rate
declined five basis points. Five-year credit-default swaps on Indonesian
debt dropped 40 basis points in June, the most since October, according
to data provider CMA, even as the rupiah headed for a fifth monthly
decline. (source)
The government will test investor appetite when it
sells global Shariah-compliant securities following the Eid al-Fitr
holiday that ends Aug. 22, Rahmat Waluyanto, the director- general at
the debt management office, said June 11. A seven-year sukuk would
probably yield 3.5 percent to 3.75 percent in the coming sale, down from
4 percent at the last offering in November, after two of the three
major ratings companies returned the nation to investment grade,
according to Mega Capital Indonesia and BNI Asset Management.
“Investors
are still very optimistic about Indonesia despite the weak rupiah,”
Brustifian Domi, the head of fixed income at Lautandhana Securindo, said
in an interview in Jakarta yesterday. “Our budget deficit is small so
we have the capacity to roll out stimulus as needed, and growth is
driven by domestic consumption, so it may be more resilient compared
with its regional peers.”
‘Investor appetite’
The
five-year credit-default swap was at 204 yesterday from this year’s
high of 254 reached on June 1, according to CMA, which compiles prices
quoted by dealers in the privately negotiated market. The contracts
insure debt against non-payment and traders use them to speculate on
credit quality. A drop signals improving perceptions of
creditworthiness, while an increase suggests the opposite.
“The
declining credit-default swaps level indicates investor appetite to
enter the Indonesian market because of strong fundamentals,” Ariawan, a
fixed-income analyst at Mega Capital who like many Indonesians goes by
only one name, said in a June 27 interview in Jakarta. “The new sukuk
will definitely yield less” than previous ones, he said.
Worldwide
sales of bonds that comply with Islam’s ban on interest reached $21
billion this year, compared with $14 billion in the same period of 2011,
according to data compiled by Bloomberg. Offerings totaled a record
$36.7 billion in the whole of last year.
Budget deficit
The
government is confident it can maintain its budget deficit at 2.3
percent of gross domestic product, below the legal limit of 3 percent,
Deputy Finance Minister Anny Ratnawati said June 19. Oil prices fell 22
percent since March 30, a day before parliament decided to refrain from
reducing fuel subsidies. Standard & Poor’s, the only major ratings
company that doesn’t assign Indonesia an investment-grade ranking, said
it was “disappointed at the setback.”
“The rating upgrade
from S&P is one of the catalysts we are waiting for after it was
unfortunately delayed,” Sonny Afriansyah, a portfolio researcher at BNI
Asset Management in Jakarta, which manages Rp 6.1 trillion ($646
million) of funds, said in a June 27 interview. “When we return to
investment grade at S&P, we expect to see yields decline much
further.”
Stimulus measures
Shariah-compliant
securities worldwide returned 5 percent in 2012, the HSBC/Nasdaq Dubai
US Dollar Sukuk Index shows, while debt in developing markets rose 6.9
percent, according to JPMorgan Chase & Co.’s EMBI Global Composite
Index.
Average yields on global Islamic bonds were 3.45
percent yesterday, the lowest level since August, according to the
HSBC/Nasdaq index. The difference between the average yield and the
London interbank offered rate, or Libor, was at 243 basis points.
Indonesia
will implement stimulus measures by tapping last year’s 24 trillion
rupiah budget surplus to fund building projects and raise the tax-free
annual income level to boost consumption as the debt crisis in Europe
threatens to derail global growth, Bambang Brodjonegoro, head of fiscal
policy at the finance ministry, said on June 13.
‘Growth story’
Bank Indonesia
predicts the economy will grow at the lower end of its 6.3 percent to
6.7 percent forecast range this year, supported by strong domestic
consumption and investment, it said in a June 12 statement. The nation’s
population of 248 million, the world’s fourth-largest according to the
US census bureau, means it is less reliant on exports than many other
Asian economies. Malaysia’s gross domestic product will increase by 4
percent to 5 percent in 2012, central bank Governor Zeti Akhtar Aziz
said last month.
“Malaysia’s sukuk is relatively steady as
the economy has been fairly stable,” Sheikh Faiz Mohamed, the
fixed-income manager at the investment division of Syarikat Takaful
Malaysia Bhd., which oversees about 5 billion ringgit ($1.6 billion) of
assets, said in a phone interview from Kuala Lumpur yesterday. “The
growth story is more with Indonesia because it has more potential
considering the bigger population and rising incomes.”
Bloomberg
Source: http://www.thejakartaglobe.com/business/indonesia-yield-spread-over-malaysia-shrinks-islamic-finance/527560 - June 28, 2012
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