The Indonesian government plans to broaden the underlying assets used for its Islamic debt papers (sukuk) as it seeks improve liquidity in the sharia-compliant bonds market in the world’s most Muslim-populated nation.
The government is studying using state-owned goods and services as underlying assets for sukuk issuances, which have normally used infrastructure projects as collateral, says Robert Pakpahan, the head of the Finance Ministry’s financing and risk management office (DJPR).
Indonesia is the most regular issuer of global sovereign sukuk even as its Islamic banking assets and local-currency sales lag behind Malaysia.
Finance Minister Bambang Brodjonegoro said on Jan. 9 that the government will offer international sukuk in the first half, the fifth straight year it’s issued such debt. The Southeast Asian nation sold $5 billion of global sukuk in the past four years, compared with $3.25 billion for Malaysia and $2 billion for Qatar, data compiled by Bloomberg show.
This year's rush by top-rated non-Muslim countries to tap the burgeoning Islamic finance market may not be repeated next year but a new crop of sovereign entrants, mostly from emerging markets, is waiting around the corner.
The United Kingdom, Hong Kong and Luxembourg - all ranked at least AA by rating agencies - issued sharia-compliant financial instruments, or sukuk, for the first time in 2014. They gave a huge boost to a market which was once just seen as a funding tool for borrowers from the Gulf and Muslim countries in southeast Asia.
sold $1 billion of sovereign Islamic bonds in its first-ever issue of the securities, attracting orders for 4.7 times the amount on offer.
The dollar-denominated five-year notes were priced at a 2.005 percent profit rate, according to a on the government’s website today. The U.K., which along with Hong Kong is rated the highest investment grade, sold sukuk for the first time in June at a coupon of 2.036 percent. Those notes yielded 1.75 percent today, data compiled by Bloomberg show.
Hong Kong, Indonesia and Pakistan are banking on pent-up investor demand as they look to raise up to a combined US$3.5bn in the fast-growing Islamic bond market.
The three sovereign sukuk issues, including a planned US$1bn debut from Triple A rated Hong Kong, are set to launch before the end of September.
Few Asian issuers have targeted the global sukuk market in the past, and the glut of deals comes as governments across Asia are looking to attract Islamic investors from outside the region.
Bank Indonesia (BI) and the Financial Services Authority (OJK) are discussing the possibility of allowing the trading of short-term sukuk (Islamic bonds) in a move that could both diversify sharia financial products and help sharia banks raise cash in the market.
Indonesia’s corporate sukuk market remains dull, with the market merely 0.4 percent the size of Malaysia’s. Experts have called on regulators to approve new products to boost the market for sharia-compliant corporate bonds.
Asia presents huge developmental potential for Islamic finance and is likely to be the main driver of Islamic banking growth in the near future given the untapped potential in India, Bangladesh and Indonesia, according to a report. Islamic finance can be utilised for greater integration of financial markets with the real economy and for improvement of the economic balance between emerging and frontier markets, according to Kuwait Finance House Group report. Islamic banking is banking that is consistent with the principles of Sharia which prohibits acceptance of specific interest or fees for loans of money.
Islamic mutual funds are emerging from a shakeout that has seen 105 of them close since 2011, and the departures of small and struggling managers will benefit the funds that remain, according to a study released on Tuesday.
The last few years have been difficult for Islamic funds, with firms pulling out as they were hurt by the global financial crisis and as slumping equity markets reduced investor interest.
Expansion of the takaful (Islamic insurance) industry is slowing as firms struggle for scale and face growing competition, but the sector is still poised to sustain double-digit growth, according to a report by Ernst & Young.
Takaful, an industry which attracted $10.9 billion in gross contributions worldwide last year, has its core markets in the Gulf and southeast Asia and serves as a bellwether of consumer appetite for Islamic finance products.
Indonesia is marketing dollar-denominated Islamic bonds at the highest yield since 2009 as it seeks to bolster its foreign-exchange reserves to support the plunging rupiah.
The nation is offering $1.5 billion of notes maturing in 5.5 years, the Finance Ministry said today. The notes will be offered at 6.375 percent, according to a person familiar with the matter who asked not to be named as the matter is private. That would be the highest rate for global Shariah-compliant securities since Indonesia paid 8.8 percent on its debut dollar sukuk in 2009. The country last offered global Islamic paper in November, selling $1 billion of 10-year securities at a record-low yield of 3.3 percent.