The government sold Rp 246 billion ($27 million) of Islamic bonds on Tuesday, not even close to the Rp 1 trillion rupiah target, the Finance Ministry’s Debt Management Office said on its Web site.
The government sold Rp 239 billion of 10.25 percent sukuk , or Islamic bonds, due in March 2030 to yield 9.94 percent, as well as Rp 7 billion of 10.25 percent notes maturing in January 2025 carrying a yield of 9.28 percent.
Investors submitted bids totaling Rp 1.18 trillion for the notes on offer. The sale was a failure, however, because bidders demanded yields “much higher than the benchmark,” said Rahmat Waluyanto, director general at the Debt Management Office.
Investors sought returns as high as 10.75 percent for the notes due in 2030, and 10.84 percent for the securities due in 2025, according to the statement.
Indonesia, the world’s largest Muslim-majority nation, has been tapping domestic and international debt markets to finance a budget deficit that is estimated to widen to 2.1 percent of gross domestic product, or Rp 133 trillion, this year from 1.6 percent in 2009.
The government tentatively aims to raise as much as $650 million in a global sukuk issue this year and has appointed HSBC, Citigroup and Standard Chartered as underwriters, Dahlan Siamat, director of Islamic financing at the Ministry of Finance, said on Tuesday.
The ministry also said it expected to raise Rp 5 trillion from an issue of retail bonds, which will carry a 7.95 percent coupon rate, planned for August. The retail issue, usually sold at par, is part of the government’s efforts to widen its investor base.
The sukuk auction on Tuesday was the 11th this year in which the government has either failed to raise any funding or sales fell short of target because investors demanded higher yields to hold the debt.
At the last sale on June 29, the Debt Management Office rejected Rp 474 billion in bids for the Rp 1 trillion of bonds on offer. It raised Rp 474 billion at the prior auction on June 15, less than the Rp 1 trillion target, and received offers of Rp 1.76 trillion.
Sukuk use asset returns to pay investors to comply with Islam’s ban on interest.