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The Jakarta Post
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Investment grade in sight on successful global sukuk sale

  • Esther Samboh

    The Jakarta Post

Jakarta | Wed, November 16 2011 | 07:12 am

The government’s successful selling of US dollar-denominated Islamic bonds known as sukuk at a cheaper rate signals declining risks of investing in Indonesia.

Even more convincing, the sukuk sales came amid global financial market uncertainty, bringing the country closer to an investment grade rating.

The selling of the nation’s second-ever sharia-compliant global sukuk was oversubscribed by 6.5 times, and the government collected US$1 billion, according to Finance Ministry debt management office Director General Rahmat Waluyanto on Tuesday. Yield — the annual return that indicates investment risk — has been set at a relatively low level of 4 percent for the seven-year government debt papers, Rahmat said.

The first sukuk issuance in 2009 forced the government to offer an 8.88 percent yield with five-year maturity, with proceeds of $650 million.

A smaller yield means lower costs of borrowing for the government. The lower yield will also be a benchmark for local companies to issue similar bonds. The cheaper yield also beat out investment grade-rated Italy earlier this week when the country sold five-year bonds worth ¤3 billion with a 6.29 percent yield.

“The sukuk sales reflect the market’s confirmation that Indonesia deserves an investment grade,” Rahmat said. “I expect a rating upgrade soon — at the beginning or middle of next year.”

Top international rating agencies Standard & Poor’s (S&P), Fitch Ratings and Moody’s Investors Service upgraded Indonesia’s sovereign credit rating to one notch below investment grade earlier this year.

An investment grade rating confirms a nation’s ability to buy back debt papers it issues, reducing risks for investors. Lower risks translate to lower yields, easing borrowing costs that strain state budgets to pay back the bonds.

Citi Indonesia economist Helmi Arman said Indonesia’s strong economic growth outlook, which would reach 7 percent in the coming years, and low public debt level of about 25 percent of the nation’s GDP were major factors that lured investors to Indonesian assets. “Indonesia’s condition is getting better while, relatively, global conditions — especially in developed nations — are worsening. Our debt ratio and sustainability improved and our credit rating prospects are increasing while many other countries are declining,” he added.

The global financial market has not yet fully recovered from the August-September turmoil, which saw trillions of dollars of investors’ funds wiped out, as signs were clear that the world’s economy was headed for a slowdown due to the debt-stricken eurozone and stalling economic recovery in the US.

However, Indonesia still attracted $6.5 billion in orders from 250 investors, Rahmat said, citing HSBC Holdings Plc., Citigroup Inc. and Standard Chartered Plc. as selling agents for the global sukuk issuance.

“Most of the investors, or 59 percent of them, are fund managers, while the remainder are banks, central banks and sovereign wealth funds,” he added.

Investors from Asia and the Middle East dominated the purchase by 32 percent and 30 percent, respectively, while Indonesian investors accounted for 12 percent, European for 18 percent and the US for 8 percent.

The global sukuk is part of the government’s Rp 124.7 trillion net bond issuance program this year to plug state budget deficit and finance development projects.


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