Indonesia sells US$2 billion of Islamic bonds in record offer

JAKARTA (Bloomberg) - Indonesia completed its largest-ever global sukuk offer, selling US$2 billion of the debt at the lowest yield in three years.

The Finance Ministry issued the dollar notes at 4.325 per cent, lower than its initial indication of 4.55 per cent, Robert Pakpahan, director general at the budget financing and risk management office at the ministry, said in a text message on Friday. That compares with the 4.35 per cent rate paid on similar Shariah-compliant debt sold last year and the record-low 3.3 per cent on 10-year sukuk issued in 2012.

Standard & Poor's, which ranks Indonesia at the highest junk level, raised its outlook on the nation's credit rating to positive from stable on Thursday, citing policy framework improvements and enhanced monetary and financial management. Hong Kong ended a roadshow for a planned sale of Shariah-compliant dollar notes on Thursday, while PT Garuda Indonesia, the country's state-controlled airline, is meeting investors to market an upcoming greenback-denominated sukuk issue.

"Demand for sukuk is increasing globally," Pakpahan said from Jakarta. "Our gross issuance has also increased this year, compared to last year," so the government decided to raise a larger amount from Islamic bonds, he said.

Indonesia's gross debt issuance goal is 452.2 trillion rupiah (S$46 billion) this year, according to an indicative target set based on the revised 2015 state budget. That compared with a 406.2 trillion rupiah goal in 2014.

The government received US$6.8 billion of bids, Pakpahan said. Middle East and Islamic funds were granted 41 per cent of the notes sold, U.S. funds got 21 per cent and European investors 16 per cent. Twelve per cent went to Asia excluding Indonesia and 10 per cent was allocated locally.

HSBC Holdings, CIMB Group Holdings Bhd., Dubai Islamic Bank PJSC and JPMorgan Chase & Co. arranged the sale, Pakpahan said.