Sharia Banking and the Financial Industry

Sukuk is not only able to manage traffic economy but also potentially as a financing instrument. In addition, sukuk also has the potential to become an instrument to manage excess liquidity mismatch. T-Bill Syariah or SPN-S who has just published in early August 2011 is now reaching the monetary area. During this monetary instrument the spirit of sukuk presence is to perform a partial migration of the monetary instruments the central bank to the Ministry of Finance. Starting last August, the government has issued securities sharia state (SBSN), or sukuk, a new type of state to respond demand the central bank to provide liquidity instruments that support the management of Islamic banks. In the same period, the government immediately issued two series in a row. SPN-S Series 03022012 issued August 4 and mature on February 3, 2012 managed to raise funds amounting to Rp570 billion. Then, NES 24022012-S series, published August 25 and will mature February 24, 2012 managed to raise funds Rp330 billion. It cannot be denied, the needs of a large market for sukuk based on the availability of monetary instruments having tenors below one year to make SPN-S has a strategic value than certificates of Bank Indonesia Sharia (SBIS) that existed before. Even more monumental when the government publishes global sukuk of U.S. $ 1 billion in mid-November 2011 occurred oversubscribed (excess supply) to 6.5 times. From the government pegged the indicative target of U.S. $ 1 billion, the amount of incoming order book reached U.S. $ 6.5 billion. The global sukuk will mature seven years with a fixed coupon of 4% using the ijara structure. Pricing 4% yield is the lowest achievement in the history of publishing SBN international capital markets and even the lowest in the global sukuk issuance of global bonds and tenured seven years by countries in Asia. In comparison, global bonds issued Bahrain which is not much different from Indonesia sukuk set yield 6.25%. This means that there is a spread of up to 225 basis points (bps). Although Bahrain has signed investment grade with a BBB rating. Indonesia, still has a rating of “junk” or below investment grade. This illustrates how the global sukuk product Indonesia as the largest Muslim country in the world with an economy that is really attractive to the market. The biggest share held by investors is 32% Asia, the Middle East 30%, Europe 18%, and U.S. 8% and 12% local. This happens because the alien does not have a huge selection of safe investments. Indonesia already has a higher position in foreign currencies by providing a lower yield than the same bond issue several years ago. Since its inaugural publication in 2008, the function of the state sukuk is still not moved far from its existence as a fiscal instrument.

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The government will offer retail bonds (ORI) in the 008 series on October 2011  to secure funds to help finance the 2011 budget. Finance Ministry director for state securities Bimantara Widyajala said  that retail state bonds, including sukuk retail bonds, are contributing more to the financing of the state budget. Funds secured from the sale of ORI bonds constituted between 8 and 9 percent of the total funds the government had secured from the selling of various state bonds in 2011, which stood at Rp 200 trillion (US$23.6 billion) as of Wednesday. Pre-marketing stage for the ORI008 series offering was from June 10 to Sept. 30, the submission for the sales target proposal would be from Oct. 3 to 4, the coupon rate enactment by the finance minister on Oct. 5, and the listing on the Indonesia Stock Exchange on Oct. 27. The ORI008 series has a tenure of three years and is set to mature on Oct. 15, 2014. Agents selling the ORI008 bonds include Bank UOB Indonesia, Citibank, ANZ Panin Bank, Bank Bukopin, BCA, CIMB Niaga, Bank Danamon, BII, Bank Mandiri, Bank Mega, BNI, OCBC NISP, Bank Panin, Bank Permata and BRI. Other official agents include Ciptadana Securities, Danareksa Sekuritas, Kresna Graha Securindo, Lauthandana Securindo, Mega Capital Indonesia, Reliance Securities, Sucorinvest Central Gani, Trimegah Securities, Standard Chartered Bank and HSBC.

The growing demand for securities that meet Islamic religious principles may lead Canadian governments and companies to start issuing Shariah bonds. HSBC Bank Canada may offer $500 million and three government-related borrowers from one Canadian province may issue $1.5 billion of sukuk, A “handful” of Canadian companies may sell C$1 billion ($980 million) of Islamic debt by 2013, said Daud Vicary Abdullah, global Islamic finance leader at Deloitte Corporate Advisory Services Sdn. in Kuala Lumpur. Egypt, Nigeria, the Philippines and Thailand have announced plans to sell their first sukuk in the past three months, partly to tap Persian Gulf oil wealth. The combined wealth of the Middle East’s more than 400,000 millionaires grew 5.1 percent in 2009 to $1.5 trillion, Cap Gemini SA and Bank of America Corp.’s Merrill Lynch unit said in June.
Positive Response
UM Financial is working with a bank in the Middle East, HSBC and Canadian provinces to help issue sukuk, Kalair said. He declined to name the Canadian borrowers or the Middle East bank because the negotiations are ongoing. Charles Clarke, a spokesman with HSBC Bank Middle East Ltd. in Dubai, declined to comment when contacted by telephone yesterday.
Global sales of sukuk, which pay asset returns to comply with the religion’s ban on interest, fell 24 percent to $11.8 billion this year from a year earlier, data compiled by Bloomberg show. Nigeria plans to sell its first Islamic debt within a year, central bank Governor Lamido Sanusi said Sept. 24.
Yields Narrow
The difference between the average yield for global sukuk and the London interbank offered rate has narrowed 20 basis points this month, the most since July, to 353, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The spread shrank 114 basis points this year.
The yield on Malaysia’s 3.928 percent note due in June 2015 has dropped 18 basis points to 2.52 percent since Sept. 30, prices from Royal Bank of Scotland Group Plc show. Its yield gap with the Dubai Department of Finance’s 6.396 percent sukuk due in November 2014 narrowed 19 basis points this month to 354.

source: bloomberg.com

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The Finance Ministry’s Debt Management Office (DMO) officially appointed 20 banks and securities companies Friday as the sales agents of Islamic bonds (sukuk) that will be sold to Indonesian individuals on February 2011. The government would not limit the amount of funds to be collected from the sukuk offering. The proceeds would not be more than Rp 10.8 trillion (US$1.2 billion), based on the amount of the government’s available underlying assets. Two sales agents involved in the offering, aimed to collect about Rp 7 trillion from the Islamic bond issuance. The yield will be decided on Feb. 2, and the Islamic debt papers will be offered from Feb. 7 to 18. Sales agents include 11 commercial banks and nine securities firms. The coupon will be at par with the government’s regular bonds’ yields, but it will be higher than the state banks’ deposits rate because this is a substitute for deposits. The bond, coded SR-003, is the third Islamic bond issued by the government to fund the country’s needs for financing. The previous two retail sukuk were also issued in the month of February, in 2010 and 2009, and sold aggressively with bids tripling the initial targets. Last year’s retail sukuk coupon stood at 12 percent, almost doubling banks’ deposit rates of 7 percent per year, excluding taxes. (more…)

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