UPDATE 1-Indonesia's next sukuk auction on Nov 19 -fin ministry

JAKARTA, Oct 28 - Indonesia's finance ministry may hold its next auction for Islamic-compliant debt, or sukuk, on Nov. 10, with a tentative target of raising 1.5 trillion rupiah ($157.5 million), an official said on Wednesday.

"As for the maturity, we will see the market's appetite," Dahlan Siamat, director in charge of sukuk issuance at the ministry, told Reuters. The finance ministry will announce details at least a week before the auction, he added.

Indonesia's regular sukuk auctions have got off to a slow start. The first one, on Oct. 13, failed to attract any winning bids as investors wanted higher yields, while a second auction, on Oct. 27, raised just 200 billion rupiah, less than 5 percent of total incoming bids. [ID:nJAK494491]

Despite the small amount raised in this week's sukuk auction, Siamat said it indicated a positive market response.

The government is keen to develop the market for Islamic debt. However, sukuk issues are relatively illiquid, which is why investors expect a higher yield for the paper.

"So investors will keep looking for high yields for sukuk," said Fadlul Imansyah, a fund manager at PNM Investment management.

The finance ministry has raised about 95 percent of its borrowing requirement for 2009, indicating that it is not under pressure to fund the budget deficit, which is forecast at 2.4 percent of GDP this year.

"It is disappointing given the government's efforts to diversify its bond market. But overall, it is not too bad as funds raised from conventional bonds will help plug the budget deficit," said Helmi Arman, a bond analyst at Bank Danamon.

"The liquidity premium for sukuk is not comparable to those for conventional bonds as the supply is still small. There's not much the government can do apart from increase supply, which will then reduce the premium." (Reporting by Dicky Kristanto and Sonya Angraini; Editing by Sara Webb)