Indonesia's first Islamic bond sale fell short of targets due to economic headwinds but market players welcomed the foray of the world's populous Muslim nation into one of the hottest financial markets.
Indonesia has fallen behind its neighbours such as Malaysia and Singapore in developing Islamic finance, which has seen buoyant growth in the past few years on the back of the petrodollar boom in the Middle East and growing wealth in Asia. Jakarta aimed to sell 5 trillion rupiah worth of sovereign Islamic bonds, or sukuk, on Tuesday, counting on the heightened appeal of such debt, seen as an attractive alternative to conventional bonds, dogged by a year-long credit market turmoil.
Islamic law, or Shariah, bans the payment of interest and Islamic bonds replace coupons with income derived from assets such as rent from property or commercial transactions, thus deterring complex structures that have become the bane of mainstream financing.
But Indonesia sold only 4.7 trillion rupiah ($513 million) of seven-year and 10-year bonds, as concerns about hefty debt supply and inflation worries dampened demand and prompted investors to seek higher yields than Jakarta was ready to accept. "Investors are still concerned about the high inflation, they are still worried that Bank Indonesia may hike interest rates again," said Willing Bolung, head of fixed income market at ANZ Bank in Jakarta. "Still, this is a positive step," he said. "Even though this is just the first one but demand is quite healthy," he added.
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