Indonesia sells Rp 7.34 trillion in third retail sukuk

Indonesians bought Rp 7.34 trillion (US$827.5 million) worth of retail Islamic bonds (sukuk), slightly higher than the government’s target of Rp 6 trillion, as they sought high yield but low risk instruments.

Rahmat Waluyanto, the director general of debt management at the Finance Ministry, said Monday that 15,487 investors bought the third issuance of Indonesian retail sukuk.

Most of the bids mainly came from 41- to 55-year-old private sector employees in Jakarta and western Indonesia.

Despite the warm welcome from individual investors on the country’s third sukuk issuance, the bids were actually lower than the second retail sukuk issuance last year at Rp 8 trillion due to “non-conducive financial market conditions”, the debt office said in its evaluation notes.

The office cited three reasons of the “not so high demand” for the Islamic bonds, coded SR-003: the BI rate hike that made the sukuk coupon less competitive; expectations of surging inflation resulting in a wait-and-see stance by investors; and an upward trend in bond yields that lowered the risk appetite of potential investors.

The coupon for the three-year bond maturing in February 2014 was set at 8.15 percent per year, higher than time deposit interests of less than 7 percent, Rahmat said.

“The coupon is paid monthly, so the returns are effectively more than 8.15 percent. The effective returns would be about 8.5 percent due to the compounding effect,” he said.

Rahmat added that the government issued Rp 57.43 trillion of sukuk since 2008 when the instrument was first introduced with Rp 13.43 trillion launched this year.

The debt office would also issue a regular sukuk with an indicative target of Rp 1 trillion on March 1, he added.

Foreign funds are projected to continue flowing into Indonesia’s financial market this year as the country awaits a ratings upgrade from Moody’s Investors Service and Fitch Ratings to obtain an investment-grade rating.

The sale of the third retail sukuk attracted less investors compared with the second retail sukuk of 17,231 investors as selling agents fared poorly.

There were more selling agents for the third retail sukuk compared to the first and second retail sukuk, but the average sales per selling agent was lower and eight selling agents failed to meet their initial selling commitment, Rahmat said.

“Several selling agents that revised up their selling quotas could not meet their target,” he added.

Bank Mandiri sold Rp 1 trillion while BNI sold Rp 700 billion and Bahana Securities some Rp 600 billion to be the leading sellers for retail sukuk. Meanwhile, state lender BRI sold the least with less than Rp 100 billion.

Indonesia, the world’s most-populous Muslim-majority nation, is tapping individual investors after it was forced to scale back an overseas debt sale as Southeast Asia’s largest economy seeks to alleviate its budget deficit.

Indonesia has projected a budget deficit of more than Rp 200 trillion this year, equivalent to 2.1 percent of gross domestic product, which would be plugged by the government’s debt issuances including various retail, regular and global bonds.