Indonesia Sovereign Sukuk: Policy and Strategy

Transcription

1 Indonesia Sovereign Sukuk: Policy and Strategy Directorate of Islamic Financing Directorate General of Debt Management Ministry of Finance Republic of Indonesia IFN Indonesia Roadshow Jakarta, 22 nd March 2011

2 Agenda I. Introduction II. GoI Sukuk Management III. Methods of GoI Sukuk Issuance IV. GoI Sukuk Market Development V. Case Study 2

3 I. Introduction Indonesia s global sukuk offers an important alternative instrument for domestic and international investors. This is a financing window that is increasingly seen as a viable financing option.. (Dow Jones Newswire 17 th April 2009)

4 Legal Basis of GoI Sukuk Issuance: Sovereign Sukuk Law No. 19/2008 Objective of Sovereign Sukuk issuance Types of Sukuk structures Approval requirement from the Parliament: Net volume of issuance The use of underlying assets Standing appropriation Transfer of beneficial title Introduction of Trust and SPV Concept Sukuk management policy: Portfolio structure Calendar of issuance Buyback and redemption Fatwa and sharia opinion of National Sharia Board 4

5 GoI Sukuk Issuance: Major Objectives diversification of state budget financing resources; accessing Islamic financial market; enhancing the development of Islamic financial market; creating a benchmark; broadening investors base; developing an alternative instrument of investment; optimizing the utilization of state-owned assets; project financing. 5

6 II. GoI Sukuk Management

7 GoI Financing Instruments Conventional T-Bond: - Global - Domestic T-Bill: - Domestic Loan: - Foreign - Domestic Islamic Sovereign Sukuk: - Global - Domestic Loan: - IDB 7

8 GoI Sukuk Development Sovereign Sukuk Law Government regulations (SPV establishment) Fatwa from National Shariah Board Indonesian Council of Ulama Shariah opinion Legal Basis Sukuk Instrument Development Ijarah Sale and Lease Back Ijarah Al-Khadamat Retail Sukuk Project Financing Sukuk Islamic T-Bills Sukuk Issuance and Market Development Underlying Assets Preparation Domestic and Global Sukuk Sukuk Structure Bookbuilding Auction Private placement Secondary Market development Auction Participant / Primary Dealer System Preparing state-owned assets Use of services Identification of infrastructure projects 8

9 GoI Sukuk Issuance Program Regular issuance in domestic market: Auction: Medium and long-term tenor Bookbuilding: Wholesale Sukuk Retail Sukuk Project Financing Sukuk (in process of constructing regulations) Private placement: IDR or foreign currency denominated Regular issuance in International Market: Global Sukuk 9

10 Features of GoI Sukuk Issuer: SPV or GoI Tradability: tradable or non tradable, depends on the type of sukuk and the terms and conditions Underlying: existing asset, usufruct, services, and equity Type of coupon: Fixed or variable Coupon payment: monthly or semi-annually Price: at par, at premium, or at discount Investors: Islamic and conventional, individual and institutional Denomination: IDR and foreign currencies Redemption: bullet payment and possibly periodic amortization over time (diminishing sukuk) 10

11 GoI Sukuk Product Development Regular Sukuk Fixed / floating rate Medium to long term (>5 years) IDR / USD denominated Tradable at market price Bullet payment at maturity Issued through auction /bookbuilding Objective: State Budget financing Retail Sukuk Fixed rate Ijarah Tenor 3 5 years Tradable at market price Individual Investors Redeemable at par (100%) Islamic Financing Instruments Islamic Saving Bonds Fixed rate Ijarah Tenor 3 5 years Non-tradable / Hold to Maturity Individual / institution Investors Redeemable at par (100%) or Amortized Islamic T-Bills (SPN-S) Short-term Discounted Tenor < 12 months Coupon payable at maturity Tradable at market price Objectives: cash-mismatch financing & Islamic money market development. Project Based Sukuk Fixed / floating rate Hybrid Medium to Long term Tradable at market price IDR / USD denominated Objective: infrastructure project development 11

12 Underlying Assets: State-Owned Assets Any state-owned assets or the assets that are purchased or obtained under the State Budget or other legitimate sources; The use of assets as underlying subjects to the Parliament approval; Type of the Assets: Land and buildings; Infrastructure Projects; and Services 12

13 Factors in Determining GoI Sukuk Structure Simplicity; Regulation Availability; Most interested structure by investors: Fixed Return; Tradable in secondary market; Structure diversification based on specific underlying assets: Ijarah Al Khadamat; The specific tasks to focusing more on real sector development: Project Financing. 13

14 Moderate Sukuk Taxation to Attract Investors Regulations : Law Number 36/2008 on Fourth Amandment of Law Number 7/1983 on Income Tax Government Regulation Number 16/2009 on Income Tax from Interest Bond Government Regulation Number 25/2009 on Income Tax from Islamic Transaction applied to bond coupon, discount bonds, and zero coupon bond: Domestic taxpayers: 20% (twenty percent) for short term sukuk (Islamic T-Bills) and 15% (fifteen percent) for above 1 year tenor sukuk; Foreign taxpayers: 20% (twenty percent) 14

15 III. Methods of GoI Sukuk Issuance

16 Steps of GoI Sukuk Issuance: BOOKBUILDING Step 1: Step 2: Step 3: Step 4: Step 5: Step 6: Determining the underlying asset. Preparing the sukuk structure Appointing the Arranger and Legal Consultant Forming of Prospectus and Equity Market Documents Evaluating the sharia compliance of sukuk Offering: - Book running - Roadshow Forming of Legal Documents. Global Sukuk can be issued as a Reg S/144 A or Global SEC offering. Allocation Distribution Finalization of Legal and Equity Market Documents Clearing Settlement Closing Listing 16

17 Steps of GoI Sukuk Issuance: AUCTION Announcement of Auction Plan Investor 1.a Bidding 6.b Awarded Bid Dealer A Dealer B Auction Participants 1.b Bidding 6.a Awarded Bid 2 Auction Rules and Monitoring BI-SSSS Trading Platform 7 6 DMO - MoF 3 4 Data Bidding Tabulation/ Allocation DSS-MoF Decision Support System 5 Publication of Auction Result DVP Settlement a. Payment b. Securities Transfer BI-RTGS v.s. BI-SSSS 17

18 GoI Sukuk Auction Method Frequency : Monthly Price Method : Multiple-Price No. of Series : Multi Tranches Tenor Sukuk Structure : Ijarah Sale and Lease Back Underlying Asset : State-owned Asset Window Time : WIB Auction Agent : Bank Indonesia Central Registry : Bank Indonesia Auction Participants : Commercial Banks & Investment Banks 18

19 IV. GoI Sukuk Market Development

20 GoI Sukuk Market Development: Challenges and Opportunities Challenges Opportunities Undeveloped market: illiquid secondary market buy and hold perspective no benchmark Authorities strong support Islamic financial institutions growth Larger potential investors: Islamic and conventional price discovery mechanism lack of market infrastructure Tax regulation Legal infrastructures Lack of supply, many demands Investors perspective on expected yield Underlying assets 20

21 Key Factors of Government Securities Market Development DEEP & LIQUID MARKET Sufficient Market Absorption Capacity & Efficient Price/Yield DEMAND Banks Securities Companies Mutual Funds Foreigners Pension Funds Insurances Central Bank PRIMARY MARKET ACTIVITIES: Regular Issuance (Bookbuilding, Auction,Private Placement) INFRASTRUCTURE: Trading System, Institutional Infrastructures SECONDARY MARKET ACTIVITIES: Buy-Sell, Buyback INFRASTRUCTURE: Buyback System, Primary Dealers, Selling Agent, Repo,BenchmarkYield Curve, Brokers/Dealers SUPPLY Bonds Sukuk CENTRAL BANK Monetary Policy: - OMO (Regular and Irregular) - Secondary Reserve REGULATION & SUPERVISION Securities and Exchange Commissions (SEC) Transparency Price Discovery Secondary Market MoF Debt Strategy (Portfolio Management and Market Development) - Products (structure, amount, currency) - Method of sale/issuance (Auction, Reverse Auction & Private Placement Fiscal Policy - Net Additional Debt - Tax Incentive 21

22 Policies to Create A Liquid Market in Sukuk Trading Deepening Market Broadening Client Base Product Widening Focusing on Benchmark Series Size Increased Cost of Fund Lowered Sustainability of Issuances Creating New Structures 22

23 V. Case Study

24 GoI Sukuk Maturity Profile (as of March 11, 2011) (in trilion IDR) 1 USD = IDR 8, TOTAL SDHI SNI SR IFR SDHI SNI SR IFR

25 Outstanding of GoI Sukuk (as of March 11, 2011) No Series Types of Aqad First Issued Date Maturity Date Coupon Amount (IDR trillion) TRADABLE 1 IFR0001 Ijara 26-Aug Aug % IFR0002 Ijara 26-Aug Aug % IFR0003 Ijara 29-Oct Sep % IFR0004 Ijara 12-Nov Oct % IFR0005 Ijara 21-Jan Jan % IFR0006 Ijara 1-Apr Mar % IFR0007 Ijara 21-Jan Jan % IFR0008 Ijara 15-Apr Mar % IFR0010 Ijara 3-Mar Feb % SR001 Ijara 25-Feb Feb % SR002 Ijara 10-Feb Feb % SR003 Ijara 23-Feb Feb % SNI2014 (Global Sukuk) Ijara 23-Apr Apr % 5.71 Subtotal (Tradable) NON-TRADABLE 1 SDHI 2012A Ijara 3-Mar-10 3-Mar % SDHI 2013A Ijara 17-May Mar % SDHI 2014A Ijara 9-Aug-10 9-Aug % SDHI 2014B Ijara 25-Aug Aug % SDHI 2014C Ijara 7-Oct-10 7-Oct % SDHI 2014D Ijara 17-Feb Feb % 6.00 Subtotal (Non-Tradable) TOTAL GOVERNMENT ISLAMIC SECURITIES Notes : - SBSN series of IFR0001 and IFR0002 used bookbuilding method while other series of IFR issued by auction - Series of SDHI were issued under private placement issuance with Ministry of Religious Affair - Tradable series of Sukuk were using Aqad Ijara - sale and lease back - Non-Tradable series of Sukuk were using Aqad Ijara Al Khadamat - Assumed exchange rate for conversion (IDR/USD) is 8,789 25

26 GoI Sukuk Issuance (as of March 11, 2011) Types of Sukuk I. TRADABLE SUKUK (in IDR) 1. Rupiah Denominated a. IFR 4,699,700,000,000 1,277,000,000,000 6,150,000,000,000 1,500,000,000,000 b. SR - 5,556,290,000,000 8,033,860,000,000 7,341,410,000, US Dollar Denominated a. SNI * - 7,031,700,000, Total Tradable Sukuk 4,699,700,000,000 13,864,990,000,000 14,183,860,000,000 8,841,410,000,000 II. NON TRADABLE SUKUK 1. Rupiah Denominated a. SDHI - 2,686,000,000,000 12,783,000,000,000 6,000,000,000,000 Total Non Tradable Sukuk - 2,686,000,000,000 12,783,000,000,000 6,000,000,000,000 Grand Total 4,699,700,000,000 16,550,990,000,000 26,966,860,000,000 14,841,410,000,000 Notes: * Global Sukuk (SNI) realization use April 24, 2009 (settlement date) exchange rate = IDR10,818/US$ 26

27 Ownership of Domestic GoI Sukuk (as of March 11, 2011) (in %) INSTITUTION Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb Mar-11 TRADABLE Total Bank Conventional Bank Sharia Bank Insurance Pension Fund Individual Mutual Fund Non Resident Others NON TRADABLE Ministry of Religious Affair TOTAL Notes: - Others consist of Corporation, Financing Institution, Securities, Foundation, etc. - Excluding Global Sukuk 27

28 Average Daily Trading Domestic GoI Sukuk (IFR) (as of March 11, 2011) 120 (billion IDR) Volume Frequency - RHS 28

29 Average Daily Trading Domestic GoI Sukuk (SR) (as of March 11, 2011) 700 (billion IDR) Volume Frequency - RHS 29

30 Indonesia s Credit Rating Ratings Current Ba1, Outlook "Stable" BB, Outlook "Positive" BB+, Outlook "Positive" BB+, Outlook "Positive" BBB-, Outlook "Stable" Last update January 17, 2011 March 12, 2010 February 23, 2011 October 14, 2010 July 13, 2010 Investment Grade Baa3 BBB- BBB- BBB- BBB- Notch(es) to IG (already IG) 30

31 Debut IDR GoI Sukuk Issuance IFR-0001 (7 Yrs) IFR-0002 (10 Yrs) Total (IDR billion) (%) (IDR billion) (%) (IDR billion) (%) Insurance , , Bank Institution Shariah Bank Pension Fund Mutual Fund Foundation Retail Total 2, , ,

32 Debut IDR Retail GoI Sukuk Issuance Types of Aqad Periodic Distributions Descriptions Price 100% Settlement Date Maturity Date Total Alloted Total Investors Incoming Bid Bid to Cover Ratio 1.00 Ijara Sale and Lease Back 12% per annum, payable monthly 25-Feb Feb-2012 IDR5,556,290,000,000 14,295 investors IDR5,556,290,000,000 Western Indonesia, excl. Jakarta (42.81%) Distribution by Geography Eastern Indonesia (1.11%) Central Indonesia (2.54%) Distribution by Profession Types Others (21.53%) Housewife (10.91%) Jakarta (53.54%) Entrepreneur (16.93%) Tradability Tradable Civil Servant (11.33%) Listing Indonesia Stock Exchange Private Employee (39.02%) Military/Police (0.28%) 32

33 Debut Global GoI Sukuk Issuance Sukuk Issuer Sukuk Obligor Currency and Format Structure Obligor / Sukuk Ratings Sukuk Assets Total Alloted Descriptions Perusahaan Penerbit SBSN Indonesia I Republic of Indonesia US Dollar and 144A/Reg S Sukuk Al-Ijara Ba3 (Moody`s)/ BB- (S&P)/ BB (Fitch) (all stable) Beneficial right over approximately 66 properties used for government purpose USD650,000,000 Pricing/Settlement Date 16 April 2009 / 23 April 2009 Maturity Date 23 April 2014 Periodic Distributions Price / Re-offer Spread Listing Governing Law Joint Bookrunners and Joint Lead Manager Incoming Bid Bid to Cover Ratio 7.3 Tradability 8.80% per annum, payable semi-annually 100% / UST bps Singapore Stock Exchange English Law (asset-related documents under Indonesian Law) HSBC, Standard Chartered, and Barclays Capital USD 4.76 Billion Tradable europe (11%) Banks (37%) Distribution by Geography US (19) Others Asia (32%) Distribution by Investor Types Insurance/ PF (4%) Retail (14%) Middle East and Islamic (30%) Indonesia (8%) Funds (45%) 33

34 Recent Issuance: IDR Retail GoI Sukuk Serie SR003 Descriptions Distribution By Geography Types of Aqad Periodic Distributions Ijara Sale and Lease Back 8.15% per annum, payable monthly Jakarta (55.40%) Western Indonesia, excl. Jakarta (40.33%) Price 100% Settlement Date Maturity Date 23-Feb Feb-2014 Eastern Indonesia (1.30%) Central Indonesia (2.97%) Total Alloted Total Investors Incoming Bid IDR7,341,410,000,000 15,487 investors IDR7,341,410,000,000 Distribution by Profession Types Military/Poli ce, (0.41%) Others (15.44%) Civil Servant (22.94%) Bid to Cover Ratio 1.00 Enterpreneur (19.09%) Tradability Tradable Listing Indonesia Stock Exchange Housewife (18.38%) Private Employee (23.74%) 34

35 credit IFR0001 & IFR0002 Indonesia Deal of The Year 2008 (Islamic Finance News); Best Islamic Deal & Best Indonesia Capital Markets Deal (International Finance Review); Best Deal of The Year & Best Sovereign Deal of The Year in Southeast Asia (Alpha South East Asia); The Asset Triple A Islamic Deal of The Year & Triple A Best Sovereign Sukuk (The Asset Asian Award); Rp 4,7 Trillion Sukuk Ijara Voted as The Best of Sovevereign Sukuk (The Asset Asian Award); PP SBSN (Issuer) Voted as The Islamic Deal of The Year (The Asset Asian Award); Voted As Islamic Deal Of The Year (The Asset Asian Award). SR001 Islamic Deals of the Year 2009 (Islamic Finance News); Best Sovereign Deal in Southest Asia 2009 (Alpha South East Asia). SNI2014 Best Deal in Indonesia 2009 (The Asset Asian Award); Best Islamic Financing 2009 (Finance Asia); Islamic Finance Deal Of The Year 2009 (Credit Magazine); Islamic News Deals Of The Year 2009 (Islamic Finance News); Islamic Deal Of The Year 2009 (International Financing Review Asia); Country Deals Of The Year 2009 (Asiamoney). 35

36 Wassalamu alaikum Wr. Wb. Thank You Any queries please contact: Directorate of Islamic Financing Directorate General of Debt Management Ministry of Finance - Republic of Indonesia Phone: (62) (21) ; Fax: (62) (21) webmaster@dmo.or.id website: