Indonesia may delay first global Islamic bond

reuters: Indonesia’s first global Islamic bond is likely to be delayed because of financial market turmoil, a minister said on Friday, a further blow after the government cancelled all domestic debt auctions for the rest of this year.

Southeast Asia’s biggest economy had originally hoped to raise between $500 million to $1 billion from the sale of the Islamic bond, or sukuk, but “is unlikely to do it now, given market conditions,” Minister Paskah Suzetta told Reuters.

“I expect it would not be a good idea to raise debt, because the market is very competitive and there are many competitors. Everybody is aiming at the Middle East,” Suzetta added.

Indonesia has responded to the current global financial crisis with measures ranging from greater protection for bank deposits to efforts to improve liquidity and avoid a credit crunch.

The central bank has intervened in currency markets to support the rupiah while the Indonesia Stock Exchange halted trading for three days last week in an attempt to prevent heavy losses. The government had planned to sell the dollar-denominated sukuk, which was expected to have a maturity of 5-10 years, in November, with a road show scheduled for the fourth week of October.

The Finance Ministry had originally said the amount could be around $1 billion, but more recently it said that the amount would depend on market conditions.

Last week, Indonesia’s finance ministry said it would cancel planned domestic debt auctions this year due to turmoil in financial markets, and would only consider resuming the debt sales if conditions stabilised. The most populous Muslim nation raised 4.7 trillion rupiah from the sales of its first Islamic bonds in late August, short of its five trillion rupiah target.

Analysts said that while the sales were lower than targeted, with domestic investors buying almost 90 percent of the bonds, the issue still signalled strong growth potential for Islamic finance.

Indonesia has a population of 226 million people, and about 85 percent are Muslim.