Suryani Omar & Khalid Qayum
Indonesia has postponed Islamic bond sales for the past eight weeks as legislators delay approvals needed for new securities.
The government postponed auctions of rupiah sukuk due in five, 10 and 15 years on May 31 and June 14. Local companies have sold Rp 200 billion ($23 million) of Islamic bonds this year, compared with Rp 700 billion in 2010.
Investors are asking for higher yields to hold the sukuk because of concern they will struggle to find buyers, said Helmi Arman, a bond strategist at Bank Danamon Indonesia.
Indonesia cannot proceed with offerings until the House of Representatives approves the use of Rp 30 trillion of state-owned assets to back the securities, Dahlan Siamat, director of Islamic finance at the Finance Ministry’s debt management office, said on June 16. Officials were scheduled to discuss the matter on Tuesday, said Rahmat Waluyanto, director general at the ministry.
“If the government really wants the Islamic finance industry to grow, it will have to acknowledge the liquidity premium demanded by investors on sukuk,” Helmi said. “Foreign funds are buying Indonesia’s conventional bonds because they see the economic fundamentals are good. The government can divert some of that demand to sukuk.”
Indonesia’s 9.25 percent sukuk due in September 2015 yielded 6.82 percent on Monday, compared with 6.79 percent on the non-Islamic 9.5 percent bond maturing in June 2015, according to prices from the Interdealer Market Association.
The next rupiah sukuk sale is slated for June 28, Dahlan said. In the third quarter, offerings of Shariah-compliant bonds are planned for July 12, Aug. 2, Aug. 23, and Sept. 20, according to the debt management office.
“If there’s no new issuance from the government, liquidity will continue to be a problem,” said Angky Hendra, a fund manager at Batavia Prosperindo Aset Manajemen. “As long as investors seek a premium for sukuk, that will impact sales from companies because it’s more costly.”
Local companies find it easier to issue debt that does not comply with religious tenets because of the lengthy process of getting approval from Shariah experts to ensure compliance, said Herbie Mohede, a fund manager at Samuel Aset Manajemen.
Bank Nagari and Bank Pembangunan Daerah Sulawesi each sold Rp 100 billion of Islamic debt this year. Two companies completed sales of a combined Rp 700 billion of sukuk last year, including two sales by state utility Perusahaan Listrik Negara worth a total of Rp 500 billion, according to data from the Capital Market and Financial Institution Supervisory Agency (Bapepam LK).
The government has raised Rp 18.84 trillion through sukuk auctions and private placements this year, according to data from the Finance Ministry and Bapepam LK. The government sold Rp 27.06 trillion of sukuk in 2010.
“New sales from the government will depend on the availability of underlying assets,” Dahlan said. “We’ve run out of assets that are approved and have put forward our request. We can only be patient. You can’t say the next sale will be postponed again because anything can happen.”