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Indonesia Still Planning Global Sukuk as It Waits for Approval

Indonesia is still planning a sale of dollar-denominated Islamic bonds in the second half even though it has yet to get approval for state-owned land and office buildings to be used to back the debt, the finance ministry said.

The ministry is seeking parliamentary approval to allow 30 trillion rupiah ($3.5 billion) of land and buildings to be used for the sukuk offerings, Dahlan Siamat, director of Islamic finance at the ministry, said in an interview today. It has “run out” of approved buildings and land, he said last month. The finance ministry is also waiting for a ministerial decree to enable it to use new projects, such as roads, railways and buildings to back Shariah-compliant bonds.

“The plan is still to sell dollar sukuk in the second half of the year but we’ve yet to identify the underlying assets,” Siamat said. If either the ministerial decree or the parliamentary approval don’t come through soon, “I think the chances of selling global sukuk in July or August will be rather slim.”

The government had to postpone a proposed sale of rupiah-denominated Islamic bonds on May 31 to this month due to the delay in getting the approvals, Siamat said. The next auction of rupiah sukuk is scheduled for June 14, according to the calendar of issuance.

“We can’t sell sukuk if we don’t have assets,” Siamat said. “We may get approval soon and the sale can go ahead as scheduled. Hopefully by end of this month we can sell sukuk.”

Shariah-compliant bonds pay asset returns to comply with Islam’s ban on interest. Rent on state-owned lands and buildings is one form of payment for such securities.

Sales of Islamic debt in Indonesia, Southeast Asia’s largest economy and home to the world’s largest Muslim population, amount to 17.94 trillion rupiah so far this year, according to combined data from the debt management office and the Capital Market and Financial Institution Supervisory Agency. Offerings rose 45 percent to 27.76 trillion rupiah in 2010.

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