Indonesia auctions Sukuk next week on the back of a positive outlook for 2014 - IFN

Indonesia auctions Sukuk next week on the back of a positive outlook for 2014

Daily Cover

INDONESIA: The Indonesian government will auction a IDR1 trillion (US$85.7 million) Sukuk next week, on the 26th November. The bid is said to be another endeavor by the government to meet its 2013 budget deficit. The auction will consist of a new issuance and a series of three existing issues to be offered at a discounted yield. Assets underlying the new Sukuk debentures are state land and buildings while the existing project-based Sukuk are backed by projects and activities in the 2013 state budget. All four Sukuk bids are to be carried out in an open auction using a multiple price method. In a statement, the directorate general of Debt Management at the Finance Ministry reaffirmed its right to sell all four Islamic bonds at higher or lower prices than the indicative target. Speaking exclusively to Islamic Finance news, Ernawan Salimsyah, the chief investment officer of Indo Premier Investment Management, said: “Indonesia recently auctioned a conventional bond a few days ago and received a bid-to-cover ratio of two. Based on this precedent, I think the Sukuk will be well-accepted too.” He attributed his positive views to the ample liquidity in Indonesia and attractive yield of approximately 8.3%. Ernawan also conveyed his optimism on the Indonesian economy in the coming year. The first half of 2014 is projected to be a tough period due to the US tapering as well as debt-filling issues which may place further downward pressure on the poorly-performing Indonesian rupiah. By the end of the first half, it is estimated that there could be a hike in debt yields. However this is projected to decrease after June once the effect of subsidy lifting by the Indonesian government eases off. Ernawan also pointed out that Bank Indonesia is expected to start cutting rates in the second half of 2014, in an effort to boost the growth of the Indonesian economy. Earlier this week, the central bank launched a program called “gres!” in support of its Shariah Economic Movement. The national campaign aims to encourage awareness amongst Shariah economic stakeholders – including authorities, industry and business players – as well as supporting institutions to work together in synergy to develop a national Shariah economic system that is more developed and advanced.