Indonesia sold $650 million of Islamic bonds on 23 April, six
months later than planned, and only went ahead with the sale
after issuing $3 billion of conventional debt in February.
The delay highlighted the correlation between the conventional
and Islamic finance markets, and highlighted the need for
caution to other Asian borrowers who have been looking to the
Islamic market as a more resilient source of funding.
Rahmat Waluyanto, head of the debt management office in
Indonesias finance ministry, told Emerging Markets in an
interview in Bali that the countrys international debut
was a monumental achievement, significant in attracting
Middle Eastern investors to Indonesia.
Indonesia is likely to offer rupiah-denominated Islamic notes
to domestic investors in the second half of the year, he
But Indonesias experiences in selling global Islamic
bonds, or sukuk, also provide a warning to other Asian
countries that are looking to tap Middle Eastern investors for
much-needed capital, Waluyanto said.
Since we first decided to issue last year, the market did
not develop as we had expected. The Islamic market was also
very badly impacted [by the crisis] so we had to
Indonesia faces competition from other Asian governments in
attracting investment from the oil-rich Middle East via Islamic
bonds. And even in the Middle East itself, companies have
struggled to attract demand for Islamic bonds.
Data firm Dealogic recorded just $6.5 billion of Islamic bonds
sold by Middle Eastern borrowers in 2008, down more than 50% on
the previous year. That drop was most pronounced in the dollar
market, where volumes plummeted from $7.6 billion in 2007 to
just $350 million from one deal in 2008.
The Asian governments hoping to tap the market include Hong
Kong. Its chief executive Donald Tsang told investors at the
end of March the government would announce modifications
to our tax laws to better accommodate shariah-compliant
products, in particular sukuk in this financial year.
Singapore sold its first Islamic bonds in a private placement
in January, while bankers are also working on debut sukuk deals
in Thailand, where the Islamic Bank of Thailand is looking to
sell bonds in Malaysia, the worlds biggest market for
Islamic debt. GS Caltex, the Korean oil company, is also
hoping to sell Islamic bonds in the Malaysian currency.
Waluyanto said Indonesia would soon introduce
project-based sukuk, allowing it to meet demand for
more of the debt.
Indonesias Islamic banking system is growing at 50% a
year, according to Muliaman Hadad, deputy governor of Bank
Indonesia, the central bank. It is a challenge for the
government and Bank Indonesia as regulators to try to catch up
as soon as possible with the market development.