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Monday, 22 June 2009

Indonesia: Sukuk Rebound Gives Domestic Firms Chance to Tap Global Finance Demand

The recovery of the global sukuk market and a lack of Shariah-compliant assets around the world should encourage domestic firms to tap the Islamic financing market, executives at HSBC’s Shariah unit said.

The sukuk, or Islamic bond, market is showing signs of recovery, with Indonesia and Bahrain successfully selling international sukuk this year after almost a year-long hiatus due to the global recession, said Mahmoud Abushamma, head of HSBC Amanah Syariah.

Amid the downturn, the total volume of global sukuk issues halved to less than $15 billion in 2008 from $30 billion the year prior, HSBC said in a statement.

The market virtually ground to a halt in March 2008, it said.

But after Indonesia’s debut in the global sukuk market in April the country managed to sell $650 million Shariah-compliant securities on orders of $4.7 billion amid strong response from international investors for its dollar-denominated sukuk. At the time, it was the biggest sukuk issue since July 2007.

Mahmoud said Indonesia succeeded with its global sukuk issue partly because it tapped the market “at an opportune time, when there was a limited supply of dollar-denominated sukuk, investors were starting to search for investment assets.”

Gahet Ascobat, HSBC Amanah’s senior vice president of structured finance, said that many investors seeking Shariah-compliant investments have been unsure about where to put their money, due to a complete lack of sukuk issues for more than a year.

“But once a sukuk issue finally came along, investors grabbed it with both hands,” Gahet said.

Indonesia’s success was followed this month by Bahrain, which just issued a $750 million global sukuk, beating Indonesia’s offering.

The Bahrain issue also elicited strong demand, with an order book of $4 billion.

“The huge oversubscription for both the Indonesia and Bahrain sukuk clearly signals that the sukuk market is on the rebound,” Mahmoud said. “It also reflects the need for sukuk instruments among Muslim investors.”

Strong demand, combined with a lack of supply, said Mahmoud, should encourage Indonesian firms to “seriously consider the sukuk market as a viable funding source to diversify their investor base.”

A number of domestic firms, including state electrical utility PT Perusahaan Listrik Negara, cellular provider PT Indosat and shipping company PT Berlian Laju Tanker have issued sukuk this year.


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