Indonesia Dollar Sukuk Beating Rupiah Debt: Islamic Finance
Yields on Indonesia’s local- currency Islamic bonds are climbing to a one-month high over dollar-denominated sukuk on speculation a rising fuel-import bill will disrupt the economy and weaken the rupiah.
The yield premium demanded on local-currency 4.45 percent notes due February 2018 over 4 percent dollar securities due November 2018 reached 184 basis points yesterday, the widest since March 19, data compiled by Bloomberg shows.
Indonesia sold $2.5 billion of non-Islamic dollar bonds this week, with offers exceeding bids by 3.2 times, the Finance Ministry said.
A 20 percent climb in global crude prices in the past six months threatens to widen the budget deficit of Indonesia, a net oil exporter until it left the Organization of Petroleum Exporting Countries in 2008.
Lawmakers last month rejected a government plan to raise the price of subsidized fuel by 33 percent.
Inflows into emerging-market local-currency debt are lagging behind those for dollar bonds for the first time in at least five years, according to EPFR Global, as the U.S. economy recovers and growth in developing-nations slows.
“Looking at the currency risk, the dollar-denominated bonds are safer,” Janson Nasrial, a market strategist at PT AM Capital in Jakarta, said in an April 18 interview. “The delay in the fuel subsidies reduction weighed on the rupiah because investors needed certainty.”
The rupiah has weakened 0.7 percent this year to 9,130 per dollar yesterday, the worst performance among Asia’s 10 most- traded currencies excluding the yen. Twelve-month non- deliverable forwards reached 9,555 per dollar, a 4.4 percent discount to the current price.
The central bank said last week that it has intervened in the currency and bond markets to arrest declines.
Indonesia’s global 4 percent dollar sukuk has returned 0.5 percent from the end of February through April 18, compared with a loss of 2.8 percent for rupiah-denominated 4.45 percent Shariah-compliant bonds due February 2018.
Investors pumped $1.1 billion into emerging-market local- currency debt funds in the six months through April 11, a 66 percent drop from the previous six-month period, according to data compiled by research firm EPFR.
Worldwide sales of bonds that comply with Islam’s ban on interest reached $12 billion this year from $5.3 billion in the same period of 2011, according to data compiled by Bloomberg.
Offerings totaled a record $36.3 billion last year.
‘Deteriorating Current Account’
Oil reached $103.15 a barrel in New York yesterday. Lawmakers gave the government the authority to reduce fuel subsidies should the Indonesia Crude Price exceed the assumed price in the budget of $105 a barrel by 15 percent over a six- month period.
The average was 11 percent above the assumption at $116.50 a barrel as of March 31, according to Bloomberg calculations based on data from the Energy and Mineral Resources Ministry.
“With the fuel subsidies kept in place, there is going to be a risk of a deteriorating current account from increased oil imports,” Wei Ming Cheong, a portfolio manager at Eastspring Investments Ltd. in Singapore, which oversees about $16 billion of Asian fixed-income assets, said in an April 17 interview.
The budget deficit may widen to as much as 2.8 percent of gross domestic product this year, from 1.3 percent at the end of 2011, should the government maintain fuel prices and only limit sales, Hatta Rajasa, coordinating minister for the economy, said on April 18, adding that it was the worst-case scenario.
Global Shariah-compliant securities returned 3 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 5.4 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.
‘Positive Chain Reaction’
Average yields on Islamic debt declined two basis points, or 0.02 percentage point, to 3.59 percent on April 18, according to the HSBC/Nasdaq index. The difference between the average yield and the London interbank offered rate, or Libor, narrowed two basis points to 241 basis points.
The yield premiumdemanded on Indonesia’s 4 percent global Shariah-compliant bonds due November 2018 over Malaysia’s 3.928 percent dollar sukuk due 2015 widened three basis points to 181 basis points on Thursday, according to data compiled by Bloomberg.
Bank Indonesia forecasts inflation will reach 6.6 percent this year if fuel prices are raised, Governor Darmin Nasution said last week, after official data showed consumer-price gains accelerated for the first time in seven months to 3.97 percent in March.
Indonesia sold $2 billion of global non-Islamic 10-year bonds on April 17 to yield 3.85 percent, compared with a coupon of 4.88 percent for similar-maturity dollar debt issued in May last year.
The yield on the nation’s 7 percent non-Islamic securities due May 2022 declined 16 basis points to 5.92 percent over the ensuing two days, according to data compiled by Bloomberg.
“We will see a positive chain reaction,” AM Capital’s Nasrial said, referring to the April 17 sale. “If the yield on the dollar-denominated bonds goes down then it will be reflected in the Islamic bonds as well.”