Indonesia's first Islamic retail bond (sukuk) was launched Friday, with a sales agent predicting net sales of Rp 5 trillion (about US$455 million).
The investment unit, named SR-001, aims to help cover the deficit in the 2009 state budget, which is predicted to be around 2.5 percent, while at the same time maintaining the growth in public consumption at about 4 to 5 percent.
"The Indonesian government is committed to developing domestic cash flow at the highest level in the midst of low economic growth," Finance Minister Sri Mulyani Indrawati said during her opening speech at the launching event.
The sukuk bond has a return rate of 12 percent per anum, which is higher than the average return of normal bank deposits and comparable to investment bonds.
The unit also has a relatively fast maturity period which is at three years and minimum risks as the government is using its assets, such as large offices, as a guarantee to ensure payment to the investors.
The total value of assets used for guarantee purposes is Rp 13.7 trillion (US$1.2 billion).
"That does not mean that the ownership of the assets is shifted to the investors, but it is more like an implicit rent for the use and benefits of the assets," Mulyani said.
The investment unit is open for all investors, not only Muslims, with minimum investment set at Rp 5 million and its multipliers.
The product targets individual investors and has no maximum purchase limit.
Interested investors can apply for the units from Jan. 30. to Feb. 20. through 13 designated official government sukuk sales agents such as Trimegah securities, BNI Securities and Bahana Securities.
Trimegah director Rosinu on the behalf of the agents said that they were targeting between Rp 4 trillion and Rp 5 trillion to be netted from the sales of the investment units.
"The high return rate with minimal risk is the main reason for our optimism in marketing this investment unit.
"Around 70 percent of our target market are conventional investors who have never invested in Islamic bonds," he said.
Like any other investment units, sukuk also had its risks although they were minimal, according to Rosinu.
"When interest rates decline, the bond value increases, creating the possibility for investors to generate capital gains by selling their bond units before they reach maturity," Rosinu said.
"However, if interest rates rise then the units' value will drop. In this case the investors will suffer a loss on their investment if they decide to sell early or cash in before maturity.
"How to avoid any loss? It is simple, just hold the bond until the end of its maturity," he added.
The Finance Ministry decided to accelerate the issue of retail sukuk, as individual investors were deemed to be in a better position than institutional investors given current market conditions and sentiment.
The current financial crisis is squeezing financial liquidity worldwide, reducing demand, as well as bonds prices, and pushing up yields.
During the year, the government plans to issue bonds, Islamic and conventional, amounting to a total of about Rp 99.7 trillion gross. (hdt)