Best Indonesian funds buying sukuk

Indonesia’s best-performing Islamic bond funds are buying sukuk of construction and retail companies.

Borrowing costs on government Shariah- compliant notes due 2018 declined 69 basis points in the past three months to 5.32 percent and touched an all-time low of 5.24 percent on Jan. 9.

The bonds are now taking advantage of the government’s $300 billion development program, after sovereign yields dropped to a record.

PT Samuel Aset Manajemen’s SAM Sukuk Syariah Sejahtera fund, which posted the biggest returns at 12 percent last year, plans to more than double corporate holdings to 50 percent of total investments in 2013, Herbie Mohede, the fixed-income manager, said in an interview.

“We have to start looking at corporate sukuk as the yields on government notes keep falling,” said Jakarta-based Mohede, whose company oversees 900 billion rupiah, said on Jan. 23. “We like the demographic play; that is looking at which sectors will be driven by the population and growing wealth, especially consumers and construction.”
‘Rising Interest’

PT Lautandhana Investment Management’s Lautandhana Proteksi Syariah I (LAUPSYI), the second-best performer with an 11 percent advance, also plans to raise holdings of construction and retail firms, said President Director Irvin Patmadiwiria. The fund oversees 1.6 trillion rupiah.

“This is the year of consumers and construction, the main sectors supporting the bulk of economic growth,” s “A bigger sukuk market would spell better returns for us as supply is the main issue. Rising interest in Shariah investing isn’t yet matched by increased issuance," said Jakarta- based Patmadiwiria.

Indonesian companies, including developer PT Adhi Karya and telecommunications provider PT Indosat, sold a total of 2 trillion rupiah of notes that comply with the Koran’s ban on interest in 2012, finance ministry data show. In Malaysia, issuance reached a record 95.8 billion ringgit ($31 billion).
Debut Sukuk

PT Adira Dinamika Multi Finance, which provides personal loans for cars and motorcycles, is seeking to raise 500 billion rupiah in a debut offering in February to help boost Shariah- compliant financing to 9 trillion rupiah this year from 6 trillion rupiah in 2012, President Director Willy Suwandi Dharma told reporters yesterday.

PT Sumberdaya Sewatama, which leases construction equipment, sold 200 billion rupiah of five-year Shariah-compliant bonds at a coupon rate of 9.6 percent in November, the prospectus shows. Biscuit-maker PT Mayora Indah (MYOR) issued similar-maturity sukuk in May after offering an indicative rate of 8.25 percent, according to the sales document. Bloomberg has no pricing for the notes because they aren’t actively traded.

“Indonesian funds are still finding it difficult to buy good-quality company sukuk,” said I Made Adi Saputra, a fixed-income analyst at PT Nusantara Capital Securities.

“There is plenty of money in the financial system right now, so I expect yields in general to keep declining moderately or at best stay near current levels,” said Mohede at Samuel Aset. “Corporate sukuk will follow that trend eventually, which is why we would be eager to buy while yields are still attractive and hold them to maturity.”

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