Government mulls Islamic global bond offer<\/p>\n
Urip Hudiono, The Jakarta Post, Jakarta<\/p>\n
Following its successful issuance of rupiah- and dollar-
\ndenominated global bonds, the government is looking into the
\npossibility of issuing bonds based on the Islamic principles of
\nsharia.<\/p>\n
Minister of Finance Jusuf Anwar told reporters on Monday that
\nthe government was currently considering the legal aspects needed
\nfor a sharia bond offering on the international market.<\/p>\n
\"The sukuk, or sharia-based bonds, are expected to fulfill the
\nrecently strong interest by investors from the Middle East,\" he
\nsaid.<\/p>\n
Jusuf, however, did not want to speculate on the amount, the
\ndenomination or the exact timeframe of the bond offering, except
\nto say that it would be done \"within the year.\"<\/p>\n
He explained that the legal aspects that were being studied
\nincluded the provision of the underlying assets for the bonds to
\nfulfill the sharia principle of profit-sharing -- rather than
\ninterest -- in conducting business.<\/p>\n
\"The bonds must comply with the sharia principle that money
\nalone may not produce money, but toil that produces money,\" he
\nsaid.<\/p>\n
As interest is prohibited in Islam, sharia-based promissory
\nnotes are usually offered as zero-rate coupon bonds and sold at a
\ndiscount price.<\/p>\n
Investors get the profit in the form of installments derived
\nfrom the bonds' underlying assets, such as rental payments of
\nland property or other approved investments.<\/p>\n
Giving the international financial market a taste of Islamic
\nfinancial principles, sharia-based bonds are growing in
\npopularity with their issuance tripling to US$6.7 billion as of
\nlast year, attracting investors worldwide, not only from the
\nMiddle East.<\/p>\n
The Indonesian government apparently does not want to miss out
\non this new trend, amid its need to raise funds through bond
\nofferings to plug the state budget deficit and the country's
\nrecently improved credit rating.<\/p>\n
Global rating agency Standard and Poor's rates Indonesia's
\nlong-term local currency debt at BB, or two levels below
\ninvestment grade, while Moody's puts it at B2, five levels below
\ninvestment grade. Both credit agencies give their Indonesia
\nratings a positive outlook.<\/p>\n
The government plans to issue a total of Rp 43 trillion
\n(US$4.53 billion) in domestic and global bonds this year. So far,
\nthe government has issued Rp 11 trillion in domestic bonds, in
\naddition to $1 billion worth of global bonds in April.<\/p>",
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