Looking to Plug Deficit Indonesia Starts Meeting Investors on Sukuk

Government officials leave today for a series of meetings with overseas investors to gauge their interest in an offering of Islamic bonds, or sukuk.

“We will start tomorrow [Friday],’’ said Dahlan Siamat, the Ministry of Finance’s director of Islamic finance. He was responding to a question about when the government would begin road shows to drum up interest in the dollar-denominated Islamic notes.

Speaking separately, a government official who asked not to be identified said that Ministry of Finance officials would “meet investors only in Middle Eastern countries.”

Rahmat Waluyanto, director general of debt management at the Ministry of Finance, which will supervise the global bond sale, said last month that the government was seeking Persian Gulf investors to purchase the Islamic notes. The government, he added, would also welcome investors from other parts of Asia, Europe and the United States.

Rahmat did not return calls or respond to a text message seeking comments on Thursday.

When Indonesia sold its first-ever Islamic dollar-denominated bonds in April 2009, the government received orders valued at $4.7 billion, which was seven times more than the $650 million in securities on offer, according to data from the Ministry of Finance.

Buyers from the Middle East accounted for 30 percent of the sale, while Asian investors bought 40 percent, Americans purchased 19 percent and Europeans acquired the remaining 11 percent.

The government had set the coupon rate at 8.80 percent, higher than interest for other government securities.

Indonesia’s 10-year bond, which has a 8.25 percent coupon rate, yielded 6.54 percent on Thursday.

The yield has fallen by 106.7 basis points this year, according to data from AsianBondsOnline, which is part of the Asian Development Bank.

The US 10-year bond, by comparison, yields 2.24 percent.

The Middle East has the world’s biggest global sukuk market, followed by Malaysia and Indonesia. Muslims make up more than 85 percent of Indonesia’s population of 240 million.

Agus Martowardojo, the finance minister, said in late August that the government planned to raise as much as $1 billion from global sukuk sales this year.

Sukuk bonds account for 22 percent of Indonesia’s dollar-denominated debt offerings. In April alone, the government raised $2.5 billion by selling dollar-denominated non-sukuk bonds.

Indonesia has been selling dollar and rupiah-denominated bonds since 2002 to raise funds to help plug its budget deficit. The country’s budget shortfall is forecast to reach Rp 124.7 trillion ($14.1 billion), or 2.1 percent of gross domestic product, this year.

The government has identified underlying assets valued at Rp 34 trillion that have been approved by the House of Representatives to support the debt sale. Rent on state-owned lands and buildings is one form of payment for such securities.


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