Indonesia said on Monday that demand for its first Islamic bond sold to retail investors had been better than expected as it outlined details of a Japanese government guarantee for a planned $1.5bn yen-denominated bond.
Sri Mulyani Indrawati, finance minister, said Rp5,556bn ($466m) was raised in the rupiah sukuk – bonds that do not pay interest – compared with the target of Rp1,700bn.
The coupon rate is fixed at 12 per cent over three years and is paid monthly.
Mrs Sri Mulyani said plans to issue US dollar-denominated sukuk to retail investors and medium-term notes, the latter expected to be in the region of $3bn, were “still in the pipeline”. She declined to give a timeframe.
Provided markets retain their shape, they are expected to be issued before the samurai issue – yen-denominated bonds issued by foreign institutions and available only to Japanese investors.
Jakarta and Tokyo agreed on Sunday that the Japanese Bank for International Co-operation would back the $1.5bn samurai issue, with the Japanese institution providing any shortfall in the take-up of the bond in a loan. The timeframe for the issuance would “very much depend on the market”, the minister said.
Officials suggested earlier this year that the yen offering would be a shibosai bond – a samurai bond sold directly to investors.
The global sukuk and medium-term notes have been delayed after a successful international roadshow this month, pending parliamentary approval for the government’s revised budget.
This will increase the planned budget deficit from 1 per cent of gross domestic product to 2.6 per cent on account of a downward revision in expected revenue and a larger stimulus plan than initially envisaged.
Analysts said the government had done well to raise as much as it had in the retail sukuk, considering its regular one-year bonds were offering 11.8 per cent and its 10-year paper 14 per cent.
“It’s a pretty good number,” Nick Cashmore, of CLSA in Jakarta, said.
“It shows that there’s pretty good demand out there and that people increasingly prefer to invest their money with the government than store it in a bank offering similar rates.”
Mr Cashmore said the need for a Japanese government guarantee for the samurai bond was indicative of market conditions.
“It just shows how tight the market for liquidity in emerging market issuances is and how risk averse most investors are.”
Jakarta and Indonesia also agreed on Sunday – on the sidelines of a regional finance ministers’ meeting – to double their currency bilateral swap agreement to $12bn.
Boediono, the Bank Indonesia governor, said yesterday that the facility would be a “second line of defence” to protect the rupiah, which has weakened 8 per cent this year.
Jakarta has similar arrangements with China and South Korea, worth $4bn and $2bn respectively.
Sukuk are structured as rental – the Indonesian retail sukuk is a sale and lease-back arrangement – or profit-sharing agreements guaranteed by physical assets.
Islamic law limits what the government can use the funds for. Jakarta intends to use them for infrastructure projects.
