Indonesian Islamic banks are gearing up for more sukuk issuance this year (farzand01/Shutterstock)

Islamic Finance

Indonesia’s sukuk outlook 2022

The country has already raised $3.5 billion via sovereign green sukuk in five years and the latest tranche will finance Indonesia’s fiscal deficit.


Jakarta: Indonesia will issue a sovereign green sukuk tranche in the upcoming sovereign sukuk issuance, once the government has assessed market conditions amid possible plans to raise its interest rates.

Dwi Irianti, Islamic Finance director, Ministry of Finance, told Salaam Gateway the government had not yet outlined a definitive timeline or target amount, but anticipated the global sukuk and its green trance to be in either the second or third quarter. However, the government has an A to D plan, reflecting it had issued sovereign green sukuk in a flexible timeline and are seeking the best window.

Sovereign sukuk is usually issued in March, April, June, September or October with $3 billion sovereign sukuk issued during 2021 including $750 million green trance in June.

“The timeline will depend on financing needs for the state budget and market conditions. Basically we have prepared everything and just need to wait for better windows to enter the market,” she said.

Indonesia has issued sovereign green sukuk annually since 2018 with a five-year tenure. The exception was 2021 with a 30-year tenure. The $3.5 billion sovereign green sukuk cumulative amount includes $1.25 billion in 2018 and $750 million annually from 2019 to 2021.

Irianti said the government plans to issue 991.3 trillion rupiah ($68.85 billion) in bonds and sukuk this year to finance the 2022 fiscal deficit. Between 28% and 31% or around 277.6 trillion rupiah ($19.3 billion) to 307.3 trillion rupiah ($21.3 billion) will come from sukuk both globally and domestically.

She anticipates more than 80% will be in foreign currency and the balance in rupiah. The actual issuance value depends on how much the government needs to finance its deficit.

Since 2008 Indonesia has regularly sold sukuk locally and internationally. Domestically the government issues non-tradable sukuk twice a month for between 7 and 8 trillion rupiah each ($486.2 million to $555.6 million) and tradable retail sukuk and savings sukuk twice annually amounting to 2 to 3 trillion rupiah ($138.9 million to $208.45 million) each. Since 2019 Indonesia has also regularly issued retail green sukuk cumulatively worth 11.8 trillion rupiah ($819.5 million) by December 2021.

Irianti said the 2022 sukuk issuance will include:

- 24 non-tradable domestic sukuk by offering four benchmark tranches, one non-mandatory tranche and one Islamic treasury bill tranche worth 7 to 8 trillion rupiah ($486.2 million to $555.6 million) each;

- Two tradable retail sukuk usually around 2 to 3 trillion rupiah ($138.9 million to $208.45 million) each;

- One non-tradable saving green sukuk usually around 2 to 3 trillion rupiah ($138.9 million to $208.45 million);

- One global sukuk including green tranche usually around $2 billion to $3 billion;

- One retail cash waqf-linked sukuk usually around 15 billion rupiah ($1.04 million);

- One inclusive sukuk to support banking lending to the micro small and medium enterprise (MSME) programme and

- One inclusive sukuk to support the tax amnesty programme.

“In general, the financing target and strategy through sukuk is more or less like last year. We are still in a high uncertainty condition due to (the global pandemic) COVID-19 and changing global economy and finance market. Therefore, our strategy remains flexible in the short-run with the focus on middle and long-term sustainability,” Irianti added.

Fikri Permana, Samuel Sekuritas Indonesia senior analyst, told Salaam Gateway the corporate sukuk issuance this year should be higher than in 2021 following the increasing risk from the US Federal Reserve’s rate rising and geopolitical factors like the Ukraine-Russia conflict.

“Investors will seek out less risky instruments and usually prefer sukuk as it has more resilience underlying than conventional instruments,” he said.

Permana added the corporate sukuk issuance scene in 2022 will be mixed. From the issuer side, some sectors experiencing growth during the pandemic like healthcare, telecommunications and banking will probably be triggered to issue the sukuk. Meanwhile, there are various investors that have sukuk maturing this year.

From the investor side, they will have better risk management and tend to wait and see with a shorter-tenure risk appetite; probably within three years and below the tenure sukuk.

Data from the Indonesia Stock Exchange and Financial Service Authority shows corporate sukuk issuance in 2021 grew in numbers and value – 53 issuances amounted to 11.3 trillion rupiah ($748.8 million) compared to 42 issuances worth 6.91 trillion rupiah ($4.8 million) in 2020. There are 189 outstanding sukuk worth 34.77 trillion rupiah ($2.6 billion) issued by 33 companies as of December 2021.

Permana said six sukuk have already been issued this year worth 1.6 billion rupiah ($111,121) by infrastructure developers Hutama Karya and Wijaya Karya. However, he said that unlike the government who has regularly issued green sukuk in the last four years, not many Indonesian companies issue green sukuk. This is despite globally investors now moving into sustainable or green sukuk that has higher ethical value and rating.

“The preference between regular sukuk and green sukuk are the issuer itself, yet unfortunately they never give any clue unlike the government. The Indonesian government is indeed one of the global big players in terms of sukuk, but for the private sector, their main concerns are limited sources and limited underlying projects, especially for the commodity sector (in which) they hardly secure decent ratings,” he said.

Ahmad Siddik Badruddin, Bank Mandiri’s risk management director, told Salaam Gateway the lack of regulation clarity and incentive support were among the downside factors halting corporations from issuing green sukuk.

“We hope there are further regulations and incentives to increase the green ecosystem, such as carbon tax, carbon system, tax instrument for green projects and interest incentive or guarantee like in the micro financing programme,” he said, adding government institutions like financial service authorities could also provide incentives like lowering the risk-weighted assets for green portfolio and exclude a green portfolio from legal lending limit.

He believed the authority should have guidance on identifying and reporting green financing. While the authority recently published a green taxonomy document as a guide to green financing, it still needs more clarity in terms of technical implementation.

Badruddin suggested holding a green financing workshop for each sector or industry as green financing or green sukuk could be issued by any corporation. However, the opportunities must first be identified.

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