Indonesia picks three banks for global sukuk-source

Reuters - Indonesia's finance ministry has appointed HSBC, Standard Chartered and Barclays Plc to handle the government's planned global Islamic bonds, a source close to the deal said on Tuesday.

Indonesia, which has the world's largest Muslim population, had said it plans to sell dollar denominated sukuk in November after launching a 5 trillion rupiah ($544.4 million) offering of Islamic bonds to the domestic market last Friday.

As the market for conventional bonds faces tough conditions from the global credit crunch, the Indonesian government is trying to tap into the fast growing Islamic finance market to fund its huge infrastructure needs.

The finance ministry had said it plans to start a roadshow for its global Islamic bond in the fourth week of October.

The proceeds from both rupiah and dollar sukuk issues will be used to help plug the budget deficit.

The finance ministry aims to use 18.371 trillion rupiah, or about $2 billion worth of property, as the underlying assets for the Islamic bonds, setting the maximum amount of such bonds that the government can issue.

Sukuk bonds comply with sharia, or Islamic law, which bans charging interest. Investors are instead paid income derived from assets such as rent from property or commercial transactions such as trade in goods and services.

Despite Indonesia's recent push to provide the required framework for the development of an Islamic finance market, some analysts have said the Southeast Asia's biggest economy still lags its rivals in the region such as Malaysia and Singapore in developing sharia-compliant products.