Indonesia to Price Seven-Year Global Islamic Bonds Today

Nov. 14 (Bloomberg) — Indonesia plans to sell seven-year Shariah-compliant bonds today, helping the nation revive Islamic debt sales from the slowest half in three years.

The government will price the notes this afternoon, Jakarta-based Dahlan Siamat, director of Islamic finance at the debt management office, said in an interview. The securities may yield about 4.25 percent, said a person familiar with the transaction,

who asked not to be identified as the details are private. HSBC Holdings Plc, Citigroup Inc. and Standard Chartered Plc are managing the benchmark-sized sale, which refers to issues of at least $500 million, the person said.

Sukuk sales in Indonesia dropped to 2.3 trillion rupiah ($257 million) since June 30, from 14 trillion rupiah in the first six months of the year, according to data compiled by Bloomberg. The nation’s foreign-exchange reserves have more than doubled since its first offering of global Islamic bonds in 2009, while the government of President Susilo Bambang Yudhoyono is targeting economic growth of 6.5 percent this year, which would be the fastest since the Asian financial crisis in 1998.

“There is a lot of interest in Indonesian assets,” Mohd Noor Hj A Rahman, chief executive officer at OSK-UOB Islamic Fund Management Bhd. in Kuala Lumpur, said in an interview today. “People believe Indonesia will be investment grade sometime in the near future. It will add to the overall liquidity and it will be good for the sukuk market.”

Debt Rating

Bank Indonesia unexpectedly lowered its benchmark reference rate by 50 basis points, or 0.5 percentage point, to 6 percent on Nov. 10 as Europe’s debt crisis threatened to curb export demand. Gross domestic product in Southeast Asia’s biggest economy increased 6.1 percent last year, compared with 4.58 percent in 2009.

Standard & Poor’s raised the nation’s foreign-currency rating to BB+ in April, one step below investment grade. The government expects to attain top status this year, Vice Finance Minister Anny Ratnawati said on April 14.

Indonesia’s sales of sukuk, which pay returns on assets to comply with Islam’s ban on interest, dropped this half to the least since 970 billion rupiah in the first six months of 2008, according to Bloomberg data.

Global offerings reached $19.6 billion this year, up from $14.3 billion in the same period of 2010, the data show. Average yields on the debt dropped 94 basis points in 2011 to 3.80 percent on Nov. 11, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.

Yields Rise

“If it’s priced at 4.25 percent, then the paper won’t be attractive to me as I was looking for a yield of at least 5 percent,” Zulkiflee Nidzam, the head of foreign exchange and bond trading at Kuala Lumpur-based Asian Finance Bank Bhd., said in an interview today.

The government sold $650 million in its first overseas issue of sukuk in April 2009. The five-year notes were priced to yield 705 basis points more than similar-maturity U.S. Treasuries. The spread has since narrowed to 277 basis points.

The yield on the 8.8 percent Islamic bonds maturing in April 2014 rose four basis points to 3.4 percent today, according to prices from Royal Bank of Scotland Group Plc.

President Yudhoyono is targeting annual economic growth of as much as 6.6 percent on average through the remainder of his term that ends in 2014 as he boosts spending on roads, ports and airports.

Indonesia’s foreign-exchange reserves rose 18 percent this year to $114 billion in October and reached a record $124.6 billion in August, official data show. Holdings totaled $57 billion in April 2009 when the government last sold global sukuk.


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