Sharia Banking and the Financial Industry

Second retail sukuk sell like hot cakes, bids reach Rp 8.03 trillion

February 10, 2010 By: admin Category: Sukuk

Retail Islamic bonds sold like hot cakes, with bids reaching Rp 8.03 trillion (US$851 million), almost tripling initial targets of Rp 3 trillion, when the high-yield bonds were introduced onto the market on Monday. The Finance Ministry’s director general of debt management, Rahmat Waluyanto, said the ministry would introduce a maximum limit on the purchase of retail sukuk after an investor placed an order worth Rp 25 billion in the bond coded SR-002, which is designated to individual investors.

The ministry would use the Rp 3 billion limit placed on the retail bonds as a benchmark but The Finance Ministry’s director general of debt management has not yet decided the limit. The investor who bought Rp 25 billion in retail sukuk might shift funds from the currently-shaky stock market. The ministry wants to develop domestic investors in the bond market to help strengthen the government’s bonds against volatility resulting from the movement made by foreign investors.

The second retail sukuk, designated for retail investors, received a total order of Rp 8.75 trillion. The sukuk offer 8.7 percent yield, maturing in 2013. The first retail sukuk issued in February last year were also a hit, absorbing a total order of Rp 5.56 trillion, about three times its initial target of Rp 1.77 trillion.

The government still has an option to sell Islamic bonds worth about Rp 17 trillion to help finance the state budget. The global sukuk would be launch early in the second half this year to cope with the budget deficit. The government would also issue yen-denominated samurai bonds sometime in the first half this year to help plug the 2010 budget deficit of Rp 98 trillion. The ministry also has sukuk sale via auction conducted once a month, said director of sharia financing policy Dahlan Siamat.

Recent upgrades in Indonesia’s ratings by international agencies have attracted foreign capital inflows. Last month Fitch Ratings upgraded Indonesia’s ratings from BB to BB+, one level below investment grade, citing the country’s resilience to the global financial crisis. Yesterday’s sale of retail sukuk attracted 17,231 investors, more than the 14,295 investors purchasing the first retail sukuk. Investors with an age from 41 to 55 years old – comprising 40.79 percent of total investors – bought the most retail sukuk, of 35.32 percent of the total volume of Rp 8.03 trillion.

The Finance Ministry also picked the best three selling agents: Bank Mandiri, Bank Negara Indonesia and Bahana Securities to sell the retail sukuk. Indonesia, the world most-populous Muslim nation, is tapping individual investors after it was forced to scale back an overseas debt sale as it seeks to alleviate its budget deficit. Sales of sukuk may increase 24 percent to $25 billion this year, led by Southeast Asia, CIMB Group Holdings Bhd., the leading broker of such issuances, said last week. Demand is strong because the government is paying a bit of an extra yield from what you can get in the secondary market. Islamic bonds are special products that appeal to a lot of retail investors in this country.