SINGAPORE: Indonesian two-year sukuk fell last month, pushing up yields by the most since September, as Standard & Poor’s kept the nation’s credit rating at junk after the government maintained fuel subsidies.
Yields on sovereign 8.8% Shariah-compliant dollar- denominated bonds due April 2014 climbed 39 basis points to 2.92% on April 30, according to data compiled by Bloomberg. That compares with a 17 basis point drop in yields on Malaysia’s 3.928% global sukuk due 2015.
The government’s inability to pare spending on energy subsidies will boost the budget deficit to 3.5% of gross domestic product, from 1.3% last year, President Susilo Bambang Yudhoyono said last week. S&P didn’t join Moody’s Investors Service and Fitch Ratings, which have granted Indonesia investment-grade status in the past five months, saying the nation is at risk from “policy slippages” such as the failure to reduce the fuel subsidies.
“Rising yields is what we get because of the stalling on fuel policy,” Herbie Mohede, a Jakarta-based portfolio manager at PT Samuel Aset Manajemen, said in an April 27 interview. “If fuel prices are raised, a big uncertainty over the inflation risk will be erased from the market and the government will have more funds for infrastructure.”
Higher yields make it more expensive to sell debt as the Finance Ministry targets 40 trillion rupiah (US$4.4 billion) of Islamic bond sales this year, up from 34 trillion rupiah in 2011.
Sales Target Increased
The yield premium demanded on Indonesia’s 4% global Shariah-compliant bonds due in November 2018 over Malaysia’s 3.928% dollar sukuk due 2015 widened 36 basis points, or 0.36 percentage point, to 198 basis points last month, according to data compiled by Bloomberg.
A government report today may show consumer prices increased 4.46% in April from a year earlier, which would be the fastest since September, according to the median estimate of 17 economists surveyed by Bloomberg.
The government may cut spending in order to maintain the deficit at the legal maximum requirement of 3%, Yudhoyono said last week. The nation raised its 2012 bond sales target, including sukuk and non-Islamic securities, to 159.6 trillion rupiah in the revised budget approved in March, from a previous goal of 134.6 trillion rupiah, according to the Finance Ministry’s debt management office.
“The price has corrected because investors see an oversupply,” Akbar Syarief, a Jakarta-based fund manager at PT MNC Asset Management, who helps oversee 1.7 trillion rupiah of assets, said in an April 27 interview. “Because fuel prices weren’t raised, the government has a greater need to issue more debt.”
Global sales of securities that comply with Islam’s ban on interest reached US$13.3 billion this year from US$5.8 billion a year earlier, according to data compiled by Bloomberg. Sales amounted to a record US$36.3 billion last year.
Indonesia has been selling Shariah-compliant bonds almost every two weeks since January as it seeks to boost trading activity, prompting the spread over non-Islamic debt to shrink.(Bloomberg/aph)