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Thursday, 29 January 2009

Indonesia: Government to Issue Retail Sukuk Ahead of Schedule

Indonesia will issue its first Islamic bonds, or sukuk, for local retail investors ahead of schedule to take advantage of declining bank interest rates, so the debt papers can compete with bank deposits, a senior official at the Finance Ministry said on Wednesday.

Rahmat Waluyanto, director general of debt management at the ministry, moved the offering dates for the bonds to the period between Jan. 30 and Feb. 20. The offering dates were initially scheduled for the period between Feb. 6 and Feb. 20.

Bank Indonesia’s key interest rate, the BI rate, currently stands at 8.75 percent. Commercial banks have lowered their deposit rates in response to the central bank’s BI rate, to between 7 percent and 9.5 percent.

Sukuk are Islamic financial securities designed to meet the requirements of Shariah law, which prohibits the payment of interest. Instead, they use a mechanism in which the coupons, or interest paid on a bond, are replaced by another form of income derived from assets, such as rental fees from property or other commercial transactions.

Rahmat said the government has set coupon rates for retail sukuk at 12 percent, higher than premium-grade bank deposit rates of about 10 percent for preferred customers.

“There is a huge amount of liquidity in banks sitting in deposits now,” Rahmat told a news conference on Wednesday, adding the government was confident the public would invest in the bonds because of the attractive rates.

Beny Witjaksono, president director of PT Bank Mega Syariah, said the retail sukuk will present tough competition for Shariah banks, which are also trying to attract deposits.

“Retail sukuk offer attractive returns and the bonds are less likely to default,” Beny said.

The new sukuk will be sold at par, or face value, at Rp 1 million ($88) per unit, with a minimum purchase amount of Rp 5 million. It will pay a fixed coupon on the 25th of each month. The debt papers will mature on Feb. 25, 2012.

The ministry expects to list debt papers on the Indonesia Stock Exchange on Feb. 26.

The government has appointed 13 sales agencies for the bonds, including four conventional banks, one Shariah bank and eight securities firms. The conventional banks are PT Bank Mandiri Tbk, PT Bank Internasional Indonesia Tbk, Citibank and HSBC. The Shariah bank is Bank Syariah Mandiri.

(Jakarta Globe)

To learn about sukuk, you are invted to attend the Global Sukuk Conference to be held in Kuala Lumpur on 25-26 February 2009.

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