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Wednesday, 11 February 2009

Indonesia reports strong demand for first retail sukuk

JAKARTA, Feb 10 (Reuters) - An Indonesian finance ministry official on Tuesday reported strong demand for the country's first retail sharia-compliant bonds, or sukuk, as investors expect more interest rate cuts.

"So far demand has been quite strong," Dahlan Siamat, the finance ministry's senior official in charge of sharia debt, told Reuters. He declined to elaborate.

Standard Chartered said in a research note this week that about 57 percent of the 1.7 trillion rupiah ($144.4 million) target amount, or 969 billion rupiah, had been sold.

Proceeds from the bond issue will help plug the state budget deficit, which is forecast at 2.5 percent of GDP this year.

"Early indications of the interest level in Indonesia's first domestic sukuk offering are encouraging with sales reported at 57 percent of the 1.7 trillion issuance target," Standard Chartered said in the report.

"As this is the inaugural offering, demand for this asset class is untested and a successful placement will, at the margin, take some pressure off the Finance Ministry's issuance pipeline for the year."

The one-month offering period for the sukuk ends on Feb. 20, with 13 selling agents appointed to sell the bonds.

Indonesia, the world's most-populous Muslim country, has recently accelerated its efforts to develop its Islamic financial market so it can tap a wider investor base.

The three-year sukuk has a 12 percent coupon, while one-year bank deposits yield between 6.75 and 10 percent. For details on the sukuk please double click on [ID:nJAK392542].

The finance ministry has declined to reveal its target for the retail sukuk issue. The ministry sold 4.7 trillion rupiah worth of 7-year and 10-year sukuk to institutional investors in August 2008, falling short of its target of 5 trillion rupiah because of inflation concerns.

Inflation has eased in recent months, mainly because the government has cut subsidised fuel prices three times since the beginning of December.

Trimegah Securities (TRIM.JK), one of the selling agents, said demand for the sukuk had been strong. Under the current scheme, the finance ministry sets certain sales target for the selling agents.

"We had on Friday already exceeded the target given to us. We are seeking approval from the finance ministry to raise the target," Trimegah debt director Desimon said.

"The return is quite attractive, the maturity is not too long and BI (Bank Indonesia) rate is likely to fall further," Desimon said, referring to the benchmark overnight rate BIPG.

Indonesia's central bank cut its key interest rate by 50 basis points to 8.25 percent in February, the third cut in three months, and indicated it may cut rates again to support economic growth.

Sukuk comply with sharia, or Islamic law, which bans charging interest. Investors are instead paid income derived from assets such as rent from property or commercial transactions such as trade in goods and services. ($1 = 11,770 rupiah)

Attend Global Sukuk Conference in Kuala Lumpur (February 2009)

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