Southeast Asia’s largest consumer lender is shunning its home country of Indonesia and selling Islamic bonds in Malaysia, lured by cheaper borrowing costs and a more-active market.
Adira Dinamika Multi Finance, which helped Indonesians buy 1.8 million motorcycles last year, will offer as much as $150 million of sukuk in Kuala Lumpur, president director Willy Suwandi Dharma said on June 30, without specifying a currency for the sale. Malaysia’s 10-year sovereign ringgit sukuk yield 4.23 percent, compared with 8.97 percent for similar-maturity Indonesian rupiah notes, data compiled by Bloomberg show.
Adira’s decision comes amid a seven-month drought in corporate Islamic bond sales in Indonesia, where the market is just 0.4 percent the size of Malaysia’s and issuers are still seeking clarity over tax rules. Indonesia’s economic growth slowed to the least since 2009 in the first quarter after the central bank raised its policy rate by 1.75 percentage points to 7.5 percent last year.
“Indonesia’s higher rates and smaller market prompted Adira to look next door,” Handy Yunianto, head of fixed-income research at Mandiri Sekuritas, a unit of the nation’s largest bank, said in a July 1 interview in Jakarta. “It will be difficult to see sales picking up in the second half of the year, when tightening liquidity curbs demand for sukuk.”
Adira plans to sell the Islamic bonds this year, or by April 2015 at the latest, after it gets a credit rating, Dharma told reporters in Jakarta. The company will use the proceeds to boost its Shariah-compliant financing business, he said. Shares of the consumer lender rose 41 percent this year, compared with a 15 percent rally in the Jakarta Composite index. Net income increased 20 percent to 1.7 trillion in 2013.
Indonesian corporate sales of debt that comply with Islam’s ban on interest amounted to 2.20 trillion rupiah in 2013, near the record 2.32 trillion rupiah in 2008, finance ministry data show.
Bank Internasional Indonesia, a unit of Malayan Banking, will end this year’s sales drought when it offers 300 billion rupiah of sukuk in July, according to a June 19 company statement. The three-year notes will be offered at 9 percent to 10 percent, as much as 1.84 percentage points more than similar- maturity government sukuk, data compiled by Bloomberg show.
“Demand for Bank Internasional’s sukuk should be quite good as there’s been a shortage of sales,” Dini Agmivia Anggraeni, a fixed-income analyst at Maybank Kim Eng Securities, one of the arrangers for the offer, said in a July 1 interview. “2014 will be a slow year. Sales are very unlikely to catch up to the sort of activity seen in previous years.”
Indonesia had $12.3 billion of outstanding Islamic bonds at the end of 2013, finance ministry data show. Malaysia, which pioneered Islamic finance in the 1980s, accounted for $178 billion of the world’s $290 billion of outstanding sukuk, according to a June 4 report by Moody’s Investors Service.
Worldwide issuance of Shariah-compliant debt has increased 26 percent this year to $25.1 billion from the same period in 2013, data compiled by Bloomberg show.
Indonesia’s Financial Services Authority is in talks with the tax department on the double taxation matter, Nurhaida, head of capital market supervision at the agency in Jakarta, said in February.
Companies must currently consult with the regulator, which makes decisions on a case-by-case basis, she said.
By contrast, Malaysia has extended tax exemptions for overseas entities selling Shariah-compliant debt onshore through 2014, from 2012 previously, to encourage more issuance.
“There’s a lot of work that needs to be done in terms of bringing it up to where it is for Malaysia,” Jesse Liew, head of global Islamic bonds at BNP Paribas Investment Partners Malaysia, said in a July 1 interview. “Malaysia’s sukuk market is generally more developed. The sukuk market here has liquidity and demand so it puts them at a big advantage.
(Jakarta Globe / 03 July 2014)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com