The issuance, which has been assigned a “BB+” long-term
foreign currency issue rating by Standard and Poor's and a provisional rating
of Ba1 by Moody's Investors Service, was subject to the right market
conditions, especially pricing. In fact, there was talk of a delay because of
the volatility in the global markets as a result of the European sovereign debt
crisis and the economic recession especially in the West where economies are
struggling even to achieve a 1 percent GDP growth rate.
The boost came from neighboring Malaysia, where Khazanah
Nasional Berhad, the country's sovereign wealth fund (SWF), a few days ago
successfully issued a 3-year benchmark offshore Renminbi 500 million sukuk in
Hong Kong, the first sukuk to be issued in the Chinese currency. The so-called
Dim Sum Sukuk was supposed to have been issued in September but the Malaysian
SWF delayed the offering because of difficult market conditions and because it
could not get the required yields it was aiming for.
The fact that the transactions was 3.6 times
oversubscribed and priced at a tight 2.9 percent, suggests that good quality
Islamic papers especially from a selected Asian countries remain attractive to
investors starved of quality conventional counterparts and are to a certain
extent insulated from the vagaries and volatility of the international markets.
Even in the important Middle East markets, local
arrangers are seeking mandates for sukuk, especially offshore offerings,
outside the region, where local issuances are largely the order of the day in
Saudi Arabia, the UAE and Bahrain. At the same time, GCC issuers are
increasingly seeking to raise funds through sukuk issuances in the south east
Asian markets, which are considered more stable and sukuk investment friendly.
Bhimantara Widyajala, director at the Debt Management Office
of the Indonesian Ministry of Finance, confirmed that the country is proceeding
with plans to issue a benchmark
global sukuk, but only at the right time and market conditions. HSBC,
Citigroup and Standard Chartered are reportedly mandated to arrange the
issuance, which could be up to $1 billion, depending on market demand.
The rating rationale for the proposed sukuk, according to
Standard and Poor's (S&P), is based on the fact that, under the related
lease and repurchase agreement between the Government and PPSI-II, the
government is obliged to make all payments to PPSI-II to ensure that the issuer
has sufficient funds to make full and timely periodic distribution and
principal payments to certificate holders.
"We rate this issue on par with the sovereign's
commercial financial obligations. This is because, in our view, the sovereign's
contractual commitment gives the government a strong incentive to treat its
obligations to PPSI-II under this transaction pari passu with its other
obligations, including conventional debt. We consider that governments may
sometimes in stressful fiscal situations consider rent or lease obligations as
subordinate to bonds or bank loans. However, in this case, we expect a default
by the government on its obligations under this transaction would likely
trigger a default on the certificates. We believe that the government will
consider the performance of the certificates as being equally important as the
performance of its conventional debt," said S&P in its rating statement.
At the same time Moody's stressed that its rating of the
proposed sukuk reflects Indonesia's sovereign rating which has been supported
by increasingly robust domestic demand over the past few years, and which has
helped to shield the economy from the global financial crisis. "In the
ensuing recovery, the pickup in commodity prices has further bolstered to the
economic outlook. Overall, growth looks to be sustainable and has not been
accompanied by significant overheating pressures. In addition, government finances
continue to be managed conservatively with deficits averaging well below 2
percent of GDP since 2001," added Moody's.
Indonesia's continuing progress toward facilitating
Islamic finance is further underlined by the launch last week of its own Commodity
Murabaha trading platform at the Jakarta Futures Exchange (JFX) in the presence
of Trade Minister Mari Elka Pangestu. The platform is a collaborative effort
between JFX, Bank Indonesia (the central bank), the Commodity Futures Trading
Supervisory Board and the National Syariah Board of the Ulema Council of
Indonesia (MUI).
Indonesia is one of the world's largest suppliers of
primary commodities and it is not surprising that the underlying contracts for
the Commodity Murabaha platform are palm oil futures and its derivatives such
as olefins and metals. The platform, if it develops according to international
best practice, may eventually prove to be a rival to Bursa Malaysia's Bursa Siq
Al Sila platform, Bahrain's Bursa Al Bait platform and the warrants issued on
the London Metals Exchange (LME), which has traditionally been the “backbone”
of Commodity Murabaha trading, primarily used for short-term liquidity
management and for servicing investment and current accounts at Islamic banks.
