Fifth Govt Sukuk Sale Expected to Bring in Rp 15t
The Finance Ministry is targeting Rp 15 trillion ($1.55 billion) from issuing rupiah-denominated Islamic bonds, or sukuk, to Indonesian citizens as part of the country’s effort to plug the budget deficit amid a deepening domestic financial market.
The Shariah compliant debt notes, the fifth issue of its kind, are intended to woo retail investors in the world’s largest Muslim-majority population to participate in financing government projects.
Dahlan Siamat, director of Islamic financing at the Finance Ministry’s debt management office, said that the sukuk would use government infrastructure projects such as toll roads and bridges as the underlying assets.
“Generally, investors prefer projects as the underlying assets,” Dahlan said on Friday ”Moreover, financing from this sukuk could help accelerate those projects.”
The government set the annual coupon rate of the rupiah sukuk at 6.0 percent with a tenor of three years.
As a comparison, commercial banks offered an interest rate of 6.1 percent on average for a year-or-above term deposit.
Bank Indonesia, the central bank, has kept its benchmark rate at 5.75 percent since last February, and the Deposit Insurance Agency only provides guarantees for up to 5.5 percent of term deposits.
The coupon was also lower than the previous sale of 6.25 percent, when it raised Rp 13.6 trillion by selling 42-month notes in November 2012.
In October 2011, the government raised Rp 8 trillion by selling 7.956 percent bonds to individual investors.
Dahlan said that institutional investors could put in minimum bids as low Rp 5 million but not higher than Rp 5 billion.
The offering period for the sukuk began on Friday and will go through Feb. 22, with settlement occurring on Feb. 27. The coupon will be paid on the 27th every month, Dahlan said.
The government has appointed several banks and security companies as selling agents for the debt notes including Bank Central Asia, Bank CIMB Niaga, Bank Mandiri, as well as securities firms Bahana Securities, and Danareksa Sekuritas.
The sukuk does not have a minimum holding period, allowing the retail investors to sell it right away in secondary market to institutional investors or banks.
Bidding terms for retail investors, the target for the bond sale, differ from large institutional investors. The minimum bid for individual investors is set at Rp 5 million, but they cannot bid higher than Rp 3 billion, according to Finance Ministry guidelines.
Dahlan said the government is mulling a plan to introduce a minimum holding period in other issuances next year.
The government, which has been selling rupiah-denominated and dollar-denominated bonds since 2002, has been using proceeds from the debt paper sales to help plug the state budget.
The government needs to plug its budget deficit of Rp 153 trillion, or 1.65 percent of gross domestic product.
Indonesian corporations have also been tapping the bond market.
According Baradita Katoppo, Fitch Ratings Indonesia’s president director, global corporate bond issuances by Indonesian companies have the potential to rise by as much as 30 percent to $13 billion this year. He said the fundamentals of Indonesian companies that plan to sell global bonds were strong and supported by the country’s investment grade sovereign credit upgrade that has drawn international investors.