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Jakarta Post
The Jakarta Post
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Govt offers return of 8.75 percent on new retail sukuk

  • Nadya Natahadibrata

    The Jakarta Post

Jakarta | Fri, February 14, 2014 | 11:37 am

The government will begin the sale of retail Islamic bonds on Friday, offering individual investors returns far higher than the deposit interest rates given by the country'€™s major banks.

The Finance Ministry'€™s debt management office announced on Thursday that the bonds, more popularly called sukuk, would be sold from Feb. 14 through Feb. 28 through appointed banks.

The retail sukuk '€” with the serial number SR-006 '€” will carry a coupon rate of 8.75 percent per annum, higher than the deposit rates of between 5 percent and 7.7 percent offered by state-owned banks and large private banks.

The offering rate of retail sukuk is, however, still lower than the deposit rates of between 10 and 11 percent offered by secondary banks.

The new retail sukuk, which will be issued on March 5, this year, will have a maturity period of three years until March 5, 2017, the debt management office said, adding the returns would be paid monthly beginning April 5.

The notes will be sold to Indonesian citizens and the minimum order set at Rp 5 million (US$417), compared with the Rp 1 billion limit for non-retail bonds.

Analysts said the new retail sharia notes gave investors better investment options as they promised higher returns than most banks could give.

Although some banks offered deposit rates higher than the guarantee rate ceiling set by the Deposit Insurance Corporation (LPS), the analysts believed investors would choose the retail sukuk to invest their money in because they were guaranteed by the government.

The LPS sets its guaranteed rate of 7.5 percent a year on time deposit and savings at commercial banks and 11 percent on savings at secondary or rural banks.

According to the government'€™s regulation, funds placed in deposits or savings offering interest rates above the LPS'€™s ceiling rates are not guaranteed.

Danamon economist Dian Ayu Yustina said the sukuk issued by the government would be very attractive to investors due to its low risk.

'€œEven though the coupon rate is lower than some bank deposit rates, the investors are spared from the risk of failed payments as the notes are issued by the government. Therefore, sukuk is still quite interesting to investors,'€ Dian told The Jakarta Post on Thursday.

She said the fact the sukuk coupon rate was higher than the previous 8.5 percent rate offered by the government retail bonds (ORI) added more appeal for investors.

The Finance Ministry received Rp 19 trillion in bids at its last retail sukuk sale in February 2013.

The government has named 18 banks and securities companies as selling agents for sukuk.

They comprise the 19 top banks including Citibank, ANZ Indonesia, Bank Rakyat Indonesia (BRI) Syariah, Bank Central Asia (BCA), Bank Mandiri and Bank Muamalat Indonesia, and nine securities firms including Bahana Securities, Danareksa Sekuritas and Mandiri Sekuritas.

Data from the Finance Ministry'€™s debt management office shows the total outstanding tradable sukuk reached Rp 87.6 trillion as of November last year, a relatively small figure compared to Rp 990.8 trillion of conventional bonds traded in the secondary market.

Sukuk auctions in Indonesia normally attract low demand among investors, who still deem the sharia-compliant notes as illiquid assets that are difficult to trade.

The yield on the government'€™s benchmark 10-year bonds declined by two basis points to 8.8 percent, Inter Dealer Market Association data shows.

The government raised Rp 1.26 trillion at a non retail sukuk auction on Feb. 11, below the indicative target of Rp 1.5 trillion, the ministry'€™s debt office said.