Indonesia New Sukuk Rallies on Supply Shortage: Islamic Finance

Due to a shortage of Islamic sovereign debt, the new dollar-denominated sukuk of Indonesia rallied at the double pace of than non-Islamic securities this week. The sales gathered $5 billion in orders for $1 billion on offer. The bonds, which will reach maturity in 2022, are sold at a coupon of 3.3%. Since November 19th, the yield fell 17 basis points reaching 3.13%. Compared to that, not Shariah-compliant bonds declined only 8 basic points to 2.91%. The current 2.82% are a record low for Shariah-compliant borrowing costs in the international markets. It is possible that next year the shortage will become even more acute because of the government's plans to cut overseas sales in order to reduce its foreign-currency risk.

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