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The Finance Ministry of Indonesia collected IDR 5.17 trillion (approx. USD $359 million) worth of Islamic bonds (in Indonesian: Surat Berharga Syariah Negara, or SBSN) through an auction on Tuesday (07/08), well above the indicative target of IDR 4 trillion (approx. USD $278 million). Islamic bonds are also known as Sukuk.
Islamic bonds (sukuk) sold by Rajawali Nusantara Indonesia, a government owned company engaged in the agro-industry, pharmaceutical industry and trade, were 2.4 times oversubscribed. Initially, the company targeted to sell IDR 200 billion (approx. USD $15 million) worth of sukuk (with a coupon rate of 10 percent). However, demand was as high as IDR 475 billion.
Indonesian credit rating agency Pefindo (Pemeringkat Efek Indonesia) says the value of issued debt paper in Indonesia may reach IDR 90 trillion (approx. USD $6.8 billion), up 34 percent from the IDR 67 trillion worth of debt paper that was issued in Indonesia last year. Debt paper involves bonds, sukuk (Islamic bonds), and medium term notes. So far this year, Pefindo has been tasked to rate up to IDR 44.1 trillion worth of debt paper, while debt paper that has been issued up to May totaled IDR 25 trillion (approx. USD $1.9 billion).
The Indonesian government is studying whether to remove the income tax on sovereign bonds (surat berharga negara, or SBN) which is currently set at 15 percent for Indonesia-based investors and 20 percent for non-resident investors. The Indonesian Finance Ministry and Financial Services Authority (OJK) will include this topic in the revision of the Income Tax Law (that is to be proposed to the House of Representatives in early 2017). Other revisions include a lower corporate income tax and a higher non-taxable income rate for individuals.
As predicted, demand for Indonesia's sharia-compliant government retail bonds (Sukuk Negara Ritel, abbreviated Sukri) remains strong and is growing. In fact, Indonesia's Finance Ministry released a statement on Monday (07/03) that said Southeast Asia's largest economy recorded its biggest ever sale of Sukri bonds. Between 19 February and 4 March 2016 Indonesia offered the three year SR-008 Islamic bond series (carrying a fixed coupon of 8.3 percent per year), raising IDR 31.5 trillion (approx. USD $2.4 billion).
Indonesia's Finance Ministry will sell rupiah-denominated Islamic bonds (known as Sukuk) on Tuesday (26/01). The ministry set an indicative target of IDR 4 trillion (approx. USD $288 million). Proceeds from the bond sale will be used to finance the government's budget deficit. This deficit is estimated to reach 2.15 percent of gross domestic product (GDP) in the 2016 State Budget.
The government of Indonesia plans to issue (foreign currency-denominated) global bonds worth USD $10 billion to cover a shortfall in the 2016 State Budget. These global bonds would be part of a total of IDR 510 trillion (approx. USD $37 billion) worth of bonds that the government plans to sell in 2016. Scenaider Siahaan, Director of Borrowing Strategy at Indonesia's Finance Ministry, said about USD $4 billion of these global bonds are US dollar-denominated. For such bonds, the government usually appoints Bank of America Merrill Lynch, CIMB, Citigroup, and HSBC as book-runners.
In 2016 investors will be able to purchase about IDR 13.7 trillion (approx. USD $1.4 billion) worth of Islamic bonds (known as sukuk) to be issued by the Indonesian government. This amount is nearly double the amount of planned sharia-compliant sovereign debt paper this year (IDR 7.14 trillion). Indonesia will use proceeds from next year's bond sales to boost the nation’s infrastructure development (such as roads, ports, power plants, rail lines, bridges and Islamic universities).
Indonesian President Joko Widodo stated during the launch of the “I Love Sharia Finance Program” that Indonesia should become the global center for Islamic finance (also known as sharia banking). The program, initiated by the country’s Financial Services Authority (OJK), was launched in Jakarta on Sunday (14/06). Islamic finance is a form of banking or banking activity that is consistent with the principles of sharia (Islamic law). In recent years, the global market for sharia-compliant financial instruments has risen robustly.
Indonesia eyes to raise IDR 20 trillion (USD $1.6 billion) from the sale of sukuk, Islamic bonds, to Indonesian citizens between 23 February and 6 March 2015. These three-year Sharia-compliant retail bonds (SR-007 retail sukuk) offer an 8.25 percent coupon rate, the highest premium over existing securities in two years. The minimum order for these bonds starts at IDR 5 million and the maximum is IDR 5 billion. The Indonesian Finance Ministry said that proceeds of the debt sales will be used to finance the country’s state-budget deficit.
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The stock exchanges of Indonesia and Malaysia agreed to join hands to develop a World Sharia Stock Market Center. Both sides signed a memorandum of understanding (MoU) on Tuesday (02/08) at the 12th World Islamic Economic Forum (WIEF) in Jakarta. Both exchanges - the Indonesia Stock Exchange (IDX) and the Bursa Malaysia - are eager to establish a global benchmark for Islamic capital markets. This is part of an effort to broaden the usage and availability of Islamic liquidity and products worldwide.
There is strong demand for Indonesia's sharia-compliant government retail bonds (in Indonesian: Sukuk Negara Ritel, abbreviated Sukri). Since the launch of series SR-008 on Friday (19/02), a number of sales agents have run out of quota. These financial institutions now request additional quota from the government. The three year SR-008 series carries a fixed coupon of 8.3 percent per year (and is tradable on the secondary market). The government of Indonesia targets to collect up to IDR 30 trillion (approx. USD $2.2 billion) in funds from the issuance. Sukri bonds are only available to Indonesian citizens.
Indonesian financial authorities are considering to ease foreign ownership limits for local Islamic banks and to promote new sharia-compliant financial tools in an effort to make the Islamic finance industry more attractive to foreign investors and the Indonesian population. Despite having the world’s largest Muslim population and being a dynamic emerging economy, Indonesia plays only a very minor role in the global Islamic banking industry. Meanwhile, domestically, Islamic banking still seriously lags behind conventional banking.
Syariah banking or Islamic finance is a large untapped potential in Indonesia, a country where about 13 percent of the total global Muslim population live. With nearly 90 percent of the 250 million people in Indonesia adhering to Islam, the market share of syariah (sharia) finance is remarkably low. At USD $24 billion, Islamic banks in Indonesia only held 4.9 percent of the country’s total banking assets in 2013, hence making Indonesia’s Financial Services Authority (OJK) decide to launch a five-year roadmap in a move to boost syariah banking.
In an attempt to strengthen the domestic investor base and to meet financing of the Revised 2014 State Budget (APBN-P 2014), the government offers Indonesian Retail Government Bonds (Obligasi Negara Ritel Indonesia, abbreviated ORI) again. This is the 11th time, the government issues ORI bonds since its first launch in 2006. The ORI series ORI011 is offered in the period 1-16 October 2014 with a coupon rate of 8.5 percent and a tenor of three years. The minimum allowed order is IDR 5 million and the maximum IDR 3 billion per individual.
The benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) ended at a record high on Wednesday (03/09) as market sentiments were positive after the Indonesian government raised USD $1.5 billion from 10-year dollar-denominated Islamic bonds (known as sukuk) on Tuesday (02/09). Foreign investors submitted USD $10 billion worth of bids, six times the amount offered, showing that they are confident about the country’s current and future economic prospects.
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