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Indonesia's sukuk set to outperform Malaysia's
21 December 2011
Category:
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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