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The Finance Ministry on Tuesday said it had canceled its planned sale of Islamic bonds.

The government had sought to raise Rp 1 trillion ($107 million) selling the notes. It rejected all of the Rp 1.7 trillion of bids it received for the sukuk , or Islamic, notes due September 2015, January 2017, January 2025 and February 2021, the ministry said in a statement posted on its Web site. “No bid was won,” the statement said, without giving a reason.

Indonesia, the world’s most-populous Muslim nation, is tapping local investors as it seeks to fund its budget deficit.

It has projected a budget gap of Rp 98 trillion this year, equivalent to about 1.6 percent of gross domestic product. The shortfall was Rp 87.2 trillion in 2009, according to the Finance Ministry.

In January, the government raised Rp 950 billion from the sale of Islamic notes, less than the Rp 1 trillion it sought. The bonds are of the Ijarah type. Shariah law forbids interest payments, so Ijarah sukuk are based on a leasing contract and pay a profit to investors rather than interest.

The government raised Rp 8 trillion from its first sale of sukuk to individual investors on Feb. 8, almost three times more than originally planned.

Moody’s Investors Service on Sept. 16 raised the nation’s rating by one level to ‘Ba2,’ two levels below investment grade, citing the economy’s resilience. The economy expanded 5.4 percent in the fourth quarter from a year earlier, the fastest pace in a year, the government said.

President Susilo Bambang Yudhoyono has pledged to double infrastructure spending to $140 billion over the next five years to deliver growth of at least 6.6 percent by the end of 2014.



Bloomberg