Indonesian Government to issue Sukuk bonds

Indonesian Government to issue Sukuk bonds

The (Indonesian) government is considering increasing the amount of backup assets for its planned issuance of government Islamic bonds, a ministry official says.

The value of the backup assets has already reached Rp 18.8 trillion (US$2.02 billion).

The Finance Ministry’s director general of state wealth Hadiyanto said Monday the current amount was the result of using assets from 20 government offices as a guarantee, and using more assets was under consideration.

“This year, we can take into account the assets of 57 government offices, such as the Education Ministry, the Defense Ministry and the Religious Affairs Ministry. All of them have a large amount of assets,” said Hadiyanto.

The government is set to issue its first Islamic bonds, or sukuk, to the domestic market in August and to the international market in October.

The bonds will be based on assets, known as ijarah, which the ministry has valued at Rp 18.8 trillion, as a guarantee for selling the bonds.

“The underlying assets will be a reference for the government in selling the sukuk,” Hadiyanto said.

The government needs to secure Rp 94.5 trillion to cover the 2008 budget deficit. It aims to obtain Rp 104.7 trillion from debt financing this year, including bond sales.

Hadiyanto said the government was working on a government regulation on Islamic bonds, as stipulated under the recently enacted sukuk law.

The House of Representatives endorsed the law in early April, empowering the government to issue Islamic bonds, particularly to attract investors from the Middle East who are reaping windfall profits from the soaring oil prices.

The ministry’s director general of debt management, Rahmat Waluyanto, said investors were waiting for Islamic bond issuances.

“We have approached some potential domestic and overseas investors,” said Rahmat, without elaboration.

Rahmat said issuing Islamic bonds would give the government more diversified bond instruments and would boost the liquidity of the domestic bond market.