Government cancels Islamic bond issuance

as published in Bisnis Indonesia daily newspaper

Wednesday, 14/10/2009 00:00 WIB

Government cancels Islamic bond issuance

JAKARTA: The government didn't absorb at all subscription made by the bidders at the auction for Islamic T-bond series IFR003 and IFR004 yesterday, leading to the cancellation of the bond issuance. The amount of subscription to the Islamic T-bonds reached IDR5.08 trillion.

The government planned to issue two Islamic T-bonds series IFR003 and IFR004 through auction yesterday and targeted to raise IDR1.5 trillion fund. IFR003 is a six-year bond, while IFR004 is an 11-year bond. Previously, the government issued Islamic T-bond series IFR001 and IFR002 last year through book building.

Director General of Debt Management Office at the Ministry of Finance Rahmat Waluyanto revealed the government didn't absorb the subscription since the average yield asked was above the yields of T-bonds in the secondary market.

"We have some reasons for not absorbing the subscription. One of the reasons is the relatively higher cost due to the high yield asked," he explained yesterday.

At the auction, the bidders recorded a total subscription of IDR5.08 trillion. The lowest and highest yields they asked for Islamic bond series IFR003 are 9.75% and 11.5%, respectively, while the lowest and highest yields they asked for Islamic bond series IFR004 are 10.5% and 12%, respectively.

Albeit declining to expose the yield expected by the government, Rahmat admitted the bid made by the Islamic financial industry was relatively smaller than that made by the conventional one.

He hoped the next auction would be able to attract more interests from the Islamic financial institutions.

According to Rahmat, the government was not worried with the cancelled bond issuance since T-bond issuance this year had reached 90% of the target. In addition, he inserted, the government had other debt instruments, such as Indonesian hajj [pilgrimage to Mecca] fund certificate (SDHI) and standby loan.

Director of Islamic Financing at the Ministry of Finance Dahlan Siamat said the government still intended to put into auction similar Islamic bonds this year.

According to him, auction enabled the government to save more money compared to bookbuilding.

Dahlan also admitted many market players asked the government to put into auction the Islamic bond already issued, so that Islamic debt securities trading in the secondary market would be more upbeat. However, he added, the government could not grant the request since Islamic T-bond series IFR001 and IFR002 prices in the secondary market had been too high.

"We cannot sell the bonds if the prices have already been too high in the market. If we force to sell the bonds, it will affect the already good price in the market." (Bisnis/21)