Indonesian Islamic bond sales will recover from the slowest half in three years as the government finances transport and power projects, according to Standard & Poor’s.
The government’s $140 billion five-year development program will boost offerings, said Allan Redimerio, S&P’s head of Asia infrastructure ratings in Singapore.
Indonesia is waiting for the right time to proceed with plans to sell $500 million of dollar-denominated sukuk, the country’s second international offering of the debt, said Dahlan Siamat, director of Islamic finance at the government’s debt management office.
“The key issue here is watching the sovereign issue by the Indonesian government,” Redimerio said, adding that sales may increase in the second half of next year.
“Once you have the pipeline of assets to back your sukuk, you can create liquidity and attract capital.”
Sukuk offerings in Indonesia dropped to Rp 2.3 trillion ($260 million) since June 30, from Rp 14 trillion in the first six months of the year, according to data compiled by Bloomberg.
That’s the least since Rp 970 billion in the first half of 2008. Malaysia has issued 40.3 billion ringgit ($12.9 billion) of the debt so far this year.
The yield on Indonesia’s 8.8 percent Islamic note due April 2014 jumped 19 basis points, or 0.19 percent, to 3.41 percent after Bank Indonesia unexpectedly cut key interest rates on Thursday, according to prices from Royal Bank of Scotland Group. The rate has advanced eight basis points this month.
Indonesia’s bond sales declined in the third quarter as Europe’s worsening debt crisis increased price swings in the debt market, said Fauzi Ichsan, a Jakarta-based senior economist at Standard Chartered.
The government’s financing plans will help spur sukuk offerings as “road and power projects ensure stable cash flows, so that’s perfect for sukuk investors,” Redimerio said.
Global sales of the securities reached $19.6 billion this year, from $14.3 billion in the same period in 2010, according to data compiled by Bloomberg.
Sukuk pay asset returns to comply with Islam’s ban on interest. In December 2010, Bank Indonesia formed a committee with Shariah scholars accountants to speed up the approval process for new products.