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JAKARTA - Indonesia has sold only 4.7 trillion rupiah of its debut rupiah-denominated Islamic bond, or sukuk, an amount slightly below its target. As a result, the government is likely to increase the size of its global dollar sukuk later this year in a bid to make up for the shortfall, people close to the deal told Dow Jones Newswires on Friday.
The disappointing outcome of the majority Muslim country’s first government sukuk auction calls into question domestic investors’ appetite for these securities at a time when they’ve become popular in neighbouring Malaysia and in the Gulf region. The Indonesian government didn’t disclose results of the sale but bankers close to the deal said seven-year sukuk were sold at yields of 11.8% and 10-year sukuk at 11.95%. Remarkably, these yields were below those of comparable conventional government bonds.
The government had targeted issuance of at least 5 trillion rupiah of the notes on the assumption that they’d be snapped up by Indonesian investors. Analysts and market participants had said local investors would welcome Islamic notes at a time when demand for government debt is on the rebound. But concerns remain that the large budget deficit could lead to oversupply in already-liquid conventional bonds.
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