SINGAPORE: Indonesia plans to issue a benchmark size global sukuk in October, its second international Islamic offering in as many years, to capitalise on strong demand for sharia paper, a government official said on Tuesday, June 15.
The sukuk could be about US$500 million to US$600 million although the authorities are monitoring markets before making a decision on the sale, a finance ministry official said.
"We still have three months. Let's watch the market," Dahlan Siamat, the finance ministry's director in charge of Islamic financing, told Reuters on Tuesday on the sidelines of an Islamic banking conference.
"We are not desperate to sell sukuk or bonds. There's no crucial reason to be desperate to go to tap the international markets," he said, adding that the deal was unlikely to be bigger than the $650 million sovereign sukuk Indonesia sold in 2009.
The finance ministry said last month the size of its global sukuk planned for this year would depend on investor demand and the government's budget.
Siamat said Indonesia was likely to request proposals on the sale to prospective lead managers on Tuesday. The issue would be used to help finance the budget deficit and as a benchmark.
The sukuk would be based on the ijara structure and the underlying assets would be government buildings.
Ijara, or leasing, is a form of financing of specific assets such as plant and machinery, vehicles or office equipment, the ownership of which remains with the leaser.
"We prefer much longer (tenor). But if you see the appetite of international investors at this point in time, they are willing (to take) shorter, say five (years)," Siamat said. "We prefer somewhere between seven to 10 (years)."
Markets have been choppy on fears that Europe's debt problems could undermine global growth but analysts have said strong demand for Malaysia's recent sovereign sukuk has highlighted the scarcity of Islamic paper.
Last month, Malaysia sold $1.25 billion worth of five-year sukuk at par with a yield spread of 180 basis points over US Treasuries, after attracting orders worth around $5.5 billion.
Some Islamic funds can only invest in sharia-compliant assets and there have been few large offerings as the sukuk market struggles to recover from Dubai's debt restructuring and several high profile defaults.
Barclays Capital said on Monday the primary market would improve this year but a full recovery was unlikely until 2011 as the industry consolidates after the banking crisis.
Indonesia's finance ministry has been holding regular domestic sukuk auctions to encourage more issuance and deepen its Islamic capital market. But investors have demanded higher yields to compensate for the illiquid sukuk market, prompting the government to reject bids
"We realise there must be a difference in the yields between conventional and sukuk but not that much," Siamat said. ' Reuters
The sukuk could be about US$500 million to US$600 million although the authorities are monitoring markets before making a decision on the sale, a finance ministry official said.
"We still have three months. Let's watch the market," Dahlan Siamat, the finance ministry's director in charge of Islamic financing, told Reuters on Tuesday on the sidelines of an Islamic banking conference.
"We are not desperate to sell sukuk or bonds. There's no crucial reason to be desperate to go to tap the international markets," he said, adding that the deal was unlikely to be bigger than the $650 million sovereign sukuk Indonesia sold in 2009.
The finance ministry said last month the size of its global sukuk planned for this year would depend on investor demand and the government's budget.
Siamat said Indonesia was likely to request proposals on the sale to prospective lead managers on Tuesday. The issue would be used to help finance the budget deficit and as a benchmark.
The sukuk would be based on the ijara structure and the underlying assets would be government buildings.
Ijara, or leasing, is a form of financing of specific assets such as plant and machinery, vehicles or office equipment, the ownership of which remains with the leaser.
"We prefer much longer (tenor). But if you see the appetite of international investors at this point in time, they are willing (to take) shorter, say five (years)," Siamat said. "We prefer somewhere between seven to 10 (years)."
Markets have been choppy on fears that Europe's debt problems could undermine global growth but analysts have said strong demand for Malaysia's recent sovereign sukuk has highlighted the scarcity of Islamic paper.
Last month, Malaysia sold $1.25 billion worth of five-year sukuk at par with a yield spread of 180 basis points over US Treasuries, after attracting orders worth around $5.5 billion.
Some Islamic funds can only invest in sharia-compliant assets and there have been few large offerings as the sukuk market struggles to recover from Dubai's debt restructuring and several high profile defaults.
Barclays Capital said on Monday the primary market would improve this year but a full recovery was unlikely until 2011 as the industry consolidates after the banking crisis.
Indonesia's finance ministry has been holding regular domestic sukuk auctions to encourage more issuance and deepen its Islamic capital market. But investors have demanded higher yields to compensate for the illiquid sukuk market, prompting the government to reject bids
"We realise there must be a difference in the yields between conventional and sukuk but not that much," Siamat said. ' Reuters
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