Indonesia's sukuk set to outperform Malaysia's
21 December 2011
News, Asia, Malaysia, Indonesia
Indonesia's elevation to investment grade may propel the country's sukuk (Islamic bonds) to outperform Malaysian bonds in 2012 after trailing the debt this year, according to a Bloomberg report.
Ratings agency Fitch, which raised Indonesia's sovereign debt rating to 'BBB-' from 'BB+' last week, rates Malaysia three levels higher at 'A-'.
Yields on Indonesia's 8.8% US dollar-denominated Islamic securities due in April 2014 were at 3.30% on Monday, compared with 2.61% for Malaysia's 3.93% global shariah-compliant notes due in 2015, according to prices from Royal Bank of Scotland plc.
"There's a good chance that the Indonesian sukuk will give better returns than Malaysia's as they are starting from a lower base," Hang Tuah Amin Tajudin, vice president of Kuala Lumpur-based OCBC Al-Amin Bank Bhd, the Islamic unit of Singapore's Oversea-Chinese Banking Corp, was quoted as saying.
"Borrowing costs may come down further when Standard & Poor's and Moody's Investors Service follow Fitch's lead and upgrade Indonesia next year," he added.
The Indonesian bond has returned 2.7% this year, compared with 3.8% for the Malaysian security. That compares with returns of 9% and 6.5%, respectively, in 2010.
Indonesia sold seven-year US dollar sukuk at a yield of 4% on November 14, 200 basis points, or two percentage points, less than the yield demanded on Italian five-year debt sold the same day.
Fitch upgraded Indonesia's credit rating on Dec 15, citing strong economic growth and declining public debt. The yield on the Indonesian 8.8% sukuk dropped 32 basis points the next day, the most in 18 months. The Malaysian bond yield slid four basis points.
Inflation in Indonesia slowed to 4.15% in November, the least since April 2010, official data show. The rupiah will strengthen 4.2% to 8,700 per US dollar by the end of next year, according to the median estimate of analysts surveyed by Bloomberg.
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