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Source: Reuters

UPDATE 2-Indonesia sees strong sukuk demand, plans buy limit

Published: 08 Feb 2010 01:51:44 PST

* Indonesia raises 8 trillion rupiah from retail sukuk

* Bids totalled 8.749 trillion rupiah vs 3 trillion target

* Analysts see 8.70 percent yield as attractive

* Indonesia plans limit on individual bids at next sale

JAKARTA, Feb 8 - Indonesia raised 8.033 trillion rupiah ($856.3 million) from the sale of a three-year retail sukuk, a finance ministry official said on Monday, more than double the indicative target of 3 trillion rupiah.

Indonesia, which has the world's largest Muslim population, has pledged to develop its domestic Islamic finance market to diversify its funding sources.

The finance ministry received bids totalling 8.749 trillion rupiah, Rahmat Waluyanto, head of the ministry's debt office, told reporters.

The retail sukuk matures in 2013 and carries an 8.70 percent yield, which helped draw in retail investors.

"So, I think it's quite attractive," said Handy Yunianto, bond market analyst at Mandiri Sekuritas, who pegged fair value at about 8.4 percent.

The government hasn't specified how much it plans to raise this year from sukuk, but the finance ministry has about 17 trillion rupiah of underlying assets earmarked for its 2010 domestic sukuk programme after Monday's issue, said Waluyanto.

The government plans to raise just over 175 trillion rupiah ($18.59 billion) this year from both external and domestic financing to repay maturing bonds and help plug a budget deficit seen at 1.6 percent of gross domestic product.

About three quarters, or 130 trillion rupiah, would be raised in domestic markets and the remainder, roughly 45 trillion rupiah ($4.8 billion), would come from external sources.

EXTERNAL

The government raised $2 billion last month by selling 10-year U.S. dollar-denominated bonds and it has said it is targeting up to about $1 billion from samurai bonds this year and it also plans global sukuk issuance.

Waluyanto said that the global sukuk issuance could take place "early in the second half" of 2010 although analysts said rising debt concerns globally triggered by Greece would suggest the government should move on the sale as soon as possible to avoid paying higher premiums later to attract investors.

Waluyanto said limits would be placed at the next retail sukuk sale on the size of individual bids. He did not elaborate but analysts said the move would be aimed at attracting more bidders in an effort to boost market liquidity.

"I think the government will use that scenario for maybe broadening retail investors," said analyst Yunianto.

Islamic finance does not allow lending in return for interest. Borrowing, via instruments such as sukuk, typically involves the sale and purchase or lease of specific assets.

Indonesia is rated below investment grade by international ratings agencies but an upbeat economic outlook, high domestic interest rates and a firm currency have attracted foreign investors. ($1=9420 Rupiah)

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