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Thursday, 17 November 2011

Indonesia Sells $1 Billion Sukuk at Half 2009 Yield Level

Nov. 15 (Bloomberg) -- Indonesia sold $1 billion of Islamic bonds at half the rate of its 2009 debut and more than two percentage points lower than a sale by Italy, supporting the Asian nation’s claim for an investment-grade rating.
The 2018 dollar securities were sold at 4 percent, data compiled by Bloomberg show. The nation issued $650 million worth of five-year sukuk in April 2009 at 8.8 percent. Italy auctioned 3 billion euros ($4 billion) of five-year bonds at 6.29 percent yesterday.
Indonesia’s currency reserves have more than doubled since 2009, while President Susilo Bambang Yudhoyono is targeting economic growth of 6.5 percent this year, the fastest since the Asian financial crisis in 1998. Standard & Poor’s raised Indonesia’s foreign-currency rating to BB+ in April, with a positive outlook, signaling a possible revision to investment grade. Moody’s investors Service cut Italy to A2, its sixth highest rank, from Aa2 last month.
“The global sukuk yield reflects the market’s view that Indonesia should have investment grade” credit rating, Rahmat Waluyanto, director general of the finance ministry’s debt management office, said in Jakarta today. “I expect the rating upgrade will happen soon, early or in the middle of next year.”
This week’s sale attracted $6.5 billion of orders from 250 investors, compared with $4.7 billion in the 2009 sale, said a person familiar with the matter, who asked not to be identified because the details are private. Investors in the Middle East or Islamic funds bought 30 percent of the issue, those in Asia 32 percent, Europe 18 percent and the U.S. 8 percent. Domestic buyers took up 12 percent. The sale targeted a rate of 4.25 percent, said a separate person familiar.
Investment Grade Target
“There is a lot of interest in Indonesian assets,” Mohd Noor Hj A Rahman, chief executive officer at OSK-UOB Islamic Fund Management Bhd. in Kuala Lumpur, said in an interview yesterday. “People believe Indonesia will be investment grade sometime in the near future. It will add to the overall liquidity and it will be good for the sukuk market.”
HSBC Holdings Plc, Citigroup Inc. and Standard Chartered Plc managed the issue of sukuk, which pay asset returns to comply with Islam’s ban on interest.
The yield on the 8.8 percent bonds due April 2014 rose five basis points to 3.40 percent as of 4 p.m. in Jakarta, according to Royal Bank of Scotland Group Plc prices. The new bond has a bid yield of 4.02 percent, according to RBS quotations.
Global sukuk sales reached $20.6 billion so far this year, up from $14.3 billion in the same period of 2010 and approaching the record $31 billion in 2007, data compiled by Bloomberg show. Average yields on the debt dropped 94 basis points in 2011 to 3.79 percent yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
Indonesia’s local-currency sukuk offerings dropped to 2.3 trillion rupiah ($255 million) since June 30, from 14 trillion rupiah in the first six months of the year, as Europe’s debt crisis damped demand for higher-yielding assets.

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