Sharia Banking and the Financial Industry

The government plans to sell Rp 1 trillion (US$100.4 million) of Islamic bonds (sukuk) next month through an auction mechanism, the Finance Ministry’s debt management office stated.
The bonds auction will be held every month throughout this year, but the amount issued will likely depend on the market. In mid-August, the government will auction the sukuk at a reasonable level of Rp 1 trillion. and the auction mechanism would be more efficient than the bookbuilding method – in which an underwriter attempts to determine the amount of shares investors want and the price they are willing to pay. The government want to show the auction is more transparent.
Through the auction, the debt management office also expects to create the benchmark series of sukuk, which will be useful to determine the yield and price of Islamic bonds to be issued in the future. The government first sold Islamic bonds in August 2008, amounting to Rp 4.7 trillion. It then issued its first retail sukuk in February, with an order of Rp 5.56 trillion. The first-ever international sale of dollar-denominated sukuk was carried out in April, raising US$650 million, with a yield of 8.8 percent for the five-year Islamic bonds maturing in 2014.
The government earlier this year launched a new type of sukuk, dubbed the Indonesian Haj Funds Sukuk (SDHI), designated to tap the Haj and Ummah Trust funds that are vulnerable to embezzlement by corrupt officials of the Religious Affairs Ministry.
Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said the auction mechanism would help the government obtain a more favorable yield, which would reduce the cost of borrowing. The auction method will be more dynamic. It will create a more favorable yield for the government.