Indonesia’s first-ever international sale of Islamic dollar bonds drew orders for $4.7 billion, seven times the $650 million of securities on offer.
"The issuance was performed to meet our funding target for the 2009 budget, to diversify our funding instruments and widen the investor base for sukuk on the international market," finance ministry official Rahmat Waluyanto said.
The five-year sukuk notes maturing in 2014 yielded 8.8 percent, or 7.035 percentage points more than similar-maturity U.S. Treasuries. Indonesia sold $2 billion of regular 10-year bonds overseas in February to yield 11.75 percent, or 8.759 points more than U.S. debt. It also auctioned $1 billion of five- year securities to yield 10.5 percent, a spread of 8.474 points.
The government is taking on more debt to help plug a budget deficit that it predicts will swell to $12.9 billion this year and as it aims to spur economic growth by increasing public spending. Indonesia has previously offered Islamic bonds in the domestic market.
Middle East buyers took up 30 percent of the bonds, Asian investors bought 40 percent, Americans 19 percent, and Europeans the remaining 11 percent.
Indonesia, home to the world’s largest Muslim population, in February raised $3 billion from the sale of conventional dollar notes to help plug the state budget deficit.
The government has sold Islamic bonds in the domestic market previously, raising about Rp 10.3 trillion from two such sales in August and February.
Sukuk conform to Islamic Shariah law in which charging interest is forbidden.
Returns on Indonesia's bonds are generated from the value of government-owned land and buildings that are securitized and effectively leased to the lender.
Indonesia's shariah financing market still lags far behind nations like Malaysia in magnitude but Waluyanto said Indonesia was likely to issue more benchmark-size Islamic bonds, possibly on an annual basis.
AFP, Indonesian Islamic bonds oversubscribed, 17 April 2009, http://www.google.com/hostednews/afp/article/ALeqM5hWwZzx1-oBq2WlVnQfrUt...
Bloomberg, Indonesia’s Islamic Bond Draws $4.7 Billion of Orders , 17 April 2009, http://www.bloomberg.com/apps/news?pid=20601087&sid=a9OBd0n1BcY8&refer=h...
The Jakarta Post, First global sukuk a big hit, 18 April 2009,