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The government raised Rp 8 trillion ($848 million) from its first sale of Islamic bonds to individual investors on Monday, almost three times more than originally planned.

The notes maturing in February 2013 will pay a return of 8.7 percent, said Rahmat Waluyanto, director general of debt-management at the Finance Ministry.

Investors bid for Rp 8.75 trillion of the Rp 3 trillion in notes on offer, he said.

Government notes of similar maturity that are due in March 2013 yielded 8.05 percent, according to midday prices from the Inter Dealer Market Association.

The government is tapping individual investors after it was forced to scale back an overseas debt sale as it seeks to fund the budget deficit.

Global sales of Islamic bonds — known as sukuk — may increase 24 percent to $25 billion this year, led by Southeast Asia, as the region’s expansion helps drag the world out of recession, Malaysia’s CIMB Group, the leading arranger of such issuance, said last week.

“Demand is strong because the government is paying a bit of an extra yield from what you can get in the secondary market,” said Suryandy Jahja, managing director at PT Kresna Graha Sekurindo. “Sukuk is a special product that appeals to a lot of retail investors in this country and there’s a lot of untapped cash in the system.”

Malaysia, Philippines and Japan also sold retail bonds last year to alleviate pressure on domestic debt supply. Retail bonds are usually offered in small amounts to make them affordable to the general public.

The government has projected a budget deficit 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.

The government in January raised Rp 950 billion from the sales of Islamic bonds, less than the Rp 1 trillion it sought. It also scaled back a sale of dollar-denominated bonds to $2 billion the same month, cancelling plans to sell 30-year debt.

Indonesia raised $650 million from its first-ever international sale of Islamic dollar bonds last April.

The government may also sell $750 million of sukuk overseas in 2010, Dahlan Siamat, director of Islamic finance at the Finance Ministry, said in December.

The Finance Ministry last August sold Rp 8.53 trillion of conventional treasury bonds to retail investors, more than the originally planned Rp 3.6 trillion, at a yield of 9.35 percent.

“It shows market confidence in the government’s debt-management policy,” said Handy Yunianto, a fixed-income analyst at PT Mandiri Sekuritas. “With the tripling in the amount it originally sought, the government should be able to reduce the sales of conventional bonds aimed for institutional investors.”

Indonesia fared better than its neighbors in the economic downturn, as growth accelerated last quarter for the first time in a year. President Susilo Bambang Yudhoyono aims to boost the country’s expansion to more than 7 percent from an average of 5.1 percent last decade.



Bloomberg