JAKARTA (TheInsiderStories) - The Indonesian government is starting selling global syariah bonds (Global Sukuk) to the Middle East investors, the proceeds of which will be used to fill State Budget deficit, a senior government official said.
Finance Minister Bambang Brodjonegoro told The Insider Stories, that he will in the near future visit Middle East investors as well as Islamic Development Bank (IDB) with regard to the Global Sukuk issuance.
Last year, Indonesian government has listed the largest Islamic bonds (SUKUK) in NASDAQ Dubai, Uni Arab Emirate (UAE) with worth $2 billion. In 2012, Indonesia entered into a Trust Certificate Issuance Program which currently has four series outstanding valued at $6 billion (Rp85.80 trillion).
“Since our international debut in 2009, we have issued global sukuk valued at 7.65 billion dollars,” Minister Bambang Brodjonegoro said.
Indonesia has become a leading Sovereign Sukuk issuer in the world and has launched an inaugural Wakala-structure SUKUK in 2014 and issued single-tranche U.S. dollar Sukuk in May, 31, 2015 with four series one issuance of $2 billion, two tranches of $1.5 billion and $1 billion.
The government, he said, is speeding up the realization of government expenditures, in particular expenditures to develop infrastructure projects. The funding sources to finance the advance realization of government expenditures will come from State revenues and Debts.
In relation to obtaining loans, the government has implemented the so-called front-loading strategy by issuing Treasury Papers. The implementation of this strategy depends on the market condition in order to prevent dried liquidity in the financial market.
One of the efforts of the pre-funding of the 2016 State Budget was the issuance of Treasury Bonds at end of 2015 worth Rp63.5 trillion, around Rp15 trillion of this was raised through private placement.
Going forward, the government will conduct regular auctions of Treasury Bonds and Sukuk in domestic market.
As of the third February 216, the realized auction of Treasury Bonds (net) has reached Rp102.2 trillion, or 31.2 percent of target set in the 2016 State Budget, consisting of Rp66.2 trillion of treasury bonds issued in domestic market and Rp36 trillion in foreign exchanges.
He added the realization of State Bduget as of February 5, 2016 has reached Rp164.9 trillion or up 27.73 trillion compared to the same period last year, representing an improvement of 27.73 percent from the same period last year. (*)
Around $65b global sukuk issuance in 2016
Meanwhile, RAM Ratings expects global Sukuk issuance to remain fairly resilient at around $55 billion–$65 billion in 2016 (2015: $66.4 billion), despite ebbing global market sentiment, particularly in Malaysia amid the weaker ringgit.
Given the steep fall in crude oil prices that have adversely affected the core Sukuk markets of Malaysia and the Gulf Cooperation Council (GCC), our projection takes into account these countries’ government expenditure cuts and potential delays in infrastructure spending.
“While Malaysia and the GCC will remain the leaders in global Sukuk issuance, supported by the funding requirements of the corporate and quasi-government sectors, we envisage
Indonesia in 2016 to still have the economic momentum to play a more significant role in tapping the global Sukuk market to fund its government budget,” observes Ruslena Ramli, Head of Islamic Finance at RAM.
Historically, more than 90 per cent of global sukuk issuance has originated from Malaysia, the GCC and Indonesia. Another encouraging trend is the rising number of sovereign Sukuk issues in 2014 and 2015, which are anticipated to spill over into 2016 and increase the number of countries that are keen on expanding their domestic Sukuk markets.
We have also analysed the Sukuk markets of the GCC member countries; the widening deficits of nations that are more dependent on oil exports could prompt the issuance of sovereign Sukuk.
Regulatory bodies, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB), the International Islamic Financial Market (IIFM), the Islamic Development Bank Group (IDB) and Malaysia International Islamic Financial Centre (MIFC) are collectively putting in efforts to build a stronger foundation for Islamic finance. RAM acknowledges their commitment to promote Islamic finance as part of the mainstream global financial system.
As a result of these initiatives, issues involving Shari’ah interpretation, the standardisation of documentation and tax treatment are progressively being looked into – to strengthen the cost-effectiveness of issuing sukuk and to lay the foundation for the next stage of development for the global Sukuk market. (*)