Sukuk Premium Falls 70% as Islamic Financing Wins Friends in Asia
The yield premium on Indonesia’s sovereign sukuk over non-Islamic bonds is down 70 percent since the bonds were sold in April 2009, while Malaysia’s debt rallied to a record as investors gain confidence in the securities. The difference in yield between Indonesia’s 8.8 percent Islamic debt due April 2014 and notes maturing the same year that don’t adhere to the religion’s ban on interest narrowed to 26 basis points from 87 at the time of issue, according to prices from the Royal Bank of Scotland Group.
Indonesia chose three banks on Tuesday to manage the sale of as much as $650 million in Islamic bonds in October after securing credit ratings upgrades from Standard & Poor’s and Moody’s in the past year as the economy recovered. Investors look at Indonesia favorably and there’s the prospect it will become an investment grade issuer.
S&P upgraded Indonesia’s credit rating to BB in March, two levels below investment grade, while Moody’s raised its ranking in September to Ba2, also two notches below. The yield on Indonesia’s dollar-denominated Islamic notes fell to a record low of 3.44 percent on Wednesday, compared with 8.37 percent at the time of issue, and returned 27 percent since the sale on April 17, 2009, according to RBS prices.
The HSBC/NASDAQ Dubai US Dollar Sukuk Index, made up of Islamic bonds from Indonesia to Saudi Arabia, gained 15 percent in the same period. Global sales of notes that comply with the religion’s ban on interest fell 24 percent to $6.6 billion so far this year. Indonesia hired HSBC Holdings, Standard Chartered and Citigroup to manage its second overseas offering of sukuk in October. The extra yield that investors demand to hold Dubai’s dollar sukuk rather than Malaysia’s has widened 30 basis points since May 28 to 409 today, according to data compiled by Bloomberg.
