Demand for Local Sukuk ‘Excessive’ With More Likely Ahead, Official Says
Surabaya. The government has issued Rp 120 trillion ($12.8 billion) in Islamic bonds during the past four years, which the Finance Ministry attributes to an “excessive” demand for them among Muslim investors.
The ministry’s director for Shariah financing, Dahlan Siamat, said the government issued its first Islamic bond, known as sukuk, in 2008, and as of Thursday it had issued a total of Rp 120 trillion.
“The achievement has been supported by excessive demand for sukuk in the domestic market,” Dahlan said in Surabaya on Thursday.
“The potential for state sukuk in the country is developing rapidly, given that 80 percent of Indonesians are Muslims and there remains large potential for them to become investors.”
Indonesia has been selling conventional and Islamic bonds during the past year to help plug its growing budget deficit. The country’s budget shortfall is forecast to reach 2.23 percent of the gross domestic product this year, according to a revised 2012 state budget.
Dahlan added that as of April, the government had recorded a total of Rp 102.88 trillion in outstanding sukuk, or the amount of sukuk that the government has yet to fully pay back.
Sukuk complies with Shariah law by using asset returns to pay investors instead of offering interest, which is prohibited in Islam. Indonesia is currently the third-largest sukuk issuer, after Malaysia and Saudi Arabia.
Indonesia will sell dollar-denominated sukuk toward the end of the year, Bloomberg cited Dahlan as saying late last week. If the sale of the Islamic bonds goes forward, it would be the third Islamic dollar-denominated sale by Southeast Asia’s largest economy.
Indonesia last sold global Shariah-compliant debt on Nov. 14 last year. The $1 billion of debt due in November 2018 was auctioned at a yield of 4 percent, compared with the 8.8 percent yield on Indonesia’s debut sale of five-year Islamic dollar bonds in 2009.Indonesia raised $650 million from its first international sale of Islamic dollar bonds in April 2009.
Last month, Bloomberg reported that yields on Indonesian sukuk fell on speculation that supply would wane after the government rejected bids at an auction.