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Indonesia Infrastructures & Sukuk Update
IIFM Specialized Sessions on Islamic Finance at ISEF
7 November 2017, Surabaya
Herwin Bustaman
Head, Shariah Banking
Maybank Indonesia
Global Sukuk Update
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3
Global Sukuk – an Overview A rebound in 2016 after three consecutive declines after its peak in 2012
52.74%
29.79%
11.25%
6.23%
12%
Top Sukuk Market 2016
Malaysia Gulf Coorporation Council Indonesia Turkey Others
Source: Thomson Reuters, MIFC estimates
Global Sukuk Issuance USDbln
Top Sukuk Markets 2016
Source: Thomson Reuters, MIFC estimates
Source: Thomson Reuters, MIFC estimates
Source: Thomson Reuters, MIFC estimates
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Global Sukuk – an Overview New issuers are diversifying their funding source by tapping the Shariah investors
Source: Bloomberg
Malaysia
Bahrain
Indonesia
Kuwait
Pakistan
Qatar
Saudi Arabia
Singapore
UAE
Malaysia
Bangladesh
Brunei
Gambia
Japan
Turkey
United States
Bahrain
Indonesia
Kuwait
Pakistan
Qatar
Saudi Arabia
Singapore
UAE
Malaysia
Hong Kong
Kazakhstan
Luxembourg
Nigeria
Oman
Yemen
Bangladesh
Brunei
Gambia
Japan
Turkey
United States
Bahrain
Indonesia
Kuwait
Pakistan
Qatar
Saudi Arabia
Singapore
UAE
Malaysia
No.
of
Sukuk Iss
uin
g C
ountr
ies
( C
orp
ora
te +
Sovere
ign)
5
Togo
China
Ivory Coast
Jordan
Kenya
Senegal
South Africa
United Kingdom
Hong Kong
Kazakhstan
Luxembourg
Nigeria
Oman
Yemen
Bangladesh
Brunei
Gambia
Japan
Turkey
United States
Bahrain
Indonesia
Kuwait
Pakistan
Qatar
Saudi Arabia
Singapore
UAE
Malaysia
Year
10
15
20
25
30
1990 - 2000 2000 - 2005 2006 - 2010 2011 - 2013 2014 - 2016
15
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2016 and beyond: governments of
Jordan, Ivory Coast, Togo, Kenya and
Oman made their debut in the global
Sukuk market. This phenomenon is
expected to grow further as
governments of Ecuador, Egypt,
Kazakhstan, Mexico, Morocco, South
Korea, Thailand, Philippines and
Tunisia explore potential debut
sovereign Sukuk issuances.
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5
Sukuk: Avenue for Infrastructure Financing
Long-term and stable cash flow
Enhanced liquidity and wider investor base
Deepened available capital pool
Longer debt maturities
Key ingredients for Infrastructure Project Financing
Infrastructure projects with long-term concessions and stable cash
flows features that are derived from clear asset sources give
certainty for financing. This features also suits financing via Sukuk.
Sukuk issuances attracts liquidity from both Islamic and
conventional investors in the global Sukuk markets
Infrastructure financing requires large amount of financing.
Traditional financing under Islamic financial institutions are
restricted by single customer limit. The availability of Sukuk as
an alternative source of financing for infrastructure projects and
source of capital.
With longer debt maturities the repayment can be spread out for
the Customer. Infrastructure projects would involve long
construction period, thus with longer maturities it will provide
ample time to build up the cashflow.
Issuer Country Islamic
Structure Issue Date Currency
Amount
Outstanding
(million)
Coupon
(%)
Tenure
(Years)
Type of Infrastructure
Project
Saudi Electricity Global Sukuk
Company 3 Saudi Arabia Ijarah 8-Apr-14 USD 2,500.0 4.00, 5.50 10.0, 30.0
Power Plants & Electricity
Transmission Network
Syarikat Prasarana Negara Bhd Malaysia Ijarah 12-Mar-14 MYR 2,000.0 4.08, 4.67 5.0, 10.0 Light Rail Transit
TNB Western Energy Bhd Malaysia Ijarah & Wakalah 30-Jan-14 MYR 3,655.0 5.06 – 5.80 10.5 - 20.0 Power Plant
Perusahaan Listrik Negara PT Indonesia Ijarah 10-Dec-13 IDR 429,000.0 9.00, 9.60 5.0, 10.0 Electricity Transmission
Network
Sarawak Hidro Sdn Bhd Malaysia Ijarah 14-Oct-13 MYR 1,000.0 4.60 15.0 Hydroelectric Dam
DEWA Sukuk 2013 Ltd United Arab
Emirates Ijarah 5-Mar-13 USD 1,000.0 3.00 5.0
Power Plants & Water
Desalination Plants
Tanjung Bin Energy Issuer Bhd Malaysia Murabahah 16-Mar-12 MYR 3,290.0 4.65 – 6.20 5.0 – 20.0 Power Plants
Projek Lebuhraya Usahasama Bhd Malaysia Musharakah 12-Jan-12 MYR 30,600.0 3.90 – 5.75 5.0 – 27.0 Expressways
Notable Sukuk Issuance for Infrastructure Project Financing in Asia
Indonesia Infrastructure Projects Update
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Indonesia continues to make progress Showing improvement on Global Competitiveness and Governance Indicators
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Indonesia consistently improves its EDBR The “Ease of Doing Business Rank (EDBR)” improves further from 91 to 72
Source: World Bank
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Indonesia is still trusted by large investors Indonesia continues to enjoy large investments relative to peers in the Region
Source: Bank Indonesia
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Indonesia is committed with the Reform The Country also has a conducive environment
Source: Bank Indonesia
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Infrastructure Financing Need 2015-2019
Source: Bank Indonesia
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Infrastructure Projects Achievement in 2015 & 2016
Source: Bank Indonesia
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Significant Progress on Infrastructure Projects
Source: Bank Indonesia
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Efforts to Accelerate Infrastructure Provision The government has enacted reforms to accelerate infrastructure provision
Source: Bank Indonesia
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Indonesia Sukuk Update
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Local Currency Bonds & Sukuk Market Still at a healthy proportion (of total outstanding securities as compared) to GDP
Size of Indonesia Local Bonds and Sukuk Market as % of GDP
(2000 – 2016)
(%)
Date Government (in
%GDP)
Corporate (in
%GDP)
Total (in
%GDP)
Dec 2000 35.39 1.36 36.75
Dec 2001 29.83 1.14 30.97
Dec 2002 26.18 1.18 27.36
Dec 2003 24.71 2.25 26.96
Dec 2004 21.92 2.56 24.48
Dec 2005 17.1 2.08 19.18
Dec 2006 18.82 1.84 20.66
Dec 2007 18.37 2 20.37
Dec 2008 13.03 1.35 14.38
Dec 2009 14 1.47 15.47
Dec 2010 12.3 1.67 13.97
Dec 2011 10.81 1.88 12.69
Dec 2012 10.48 2.18 12.66
Dec 2013 11.43 2.29 13.72
Dec 2014 12.37 2.11 14.48
Dec 2015 13 2.16 15.16
Mar 2016 14.03 2.16 16.19
Source: Asian Bonds Online, data as at March 2016
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Project Financing Government Sukuk
Ministry of Transportation
(IDR7.543 trillion):
•Elevated & Double Track Railways (Jabodetabek, Central Java, East Java, Sumatera & Sulawesi).
Ministry of Public Works &
Housing (IDR7.429 trillion):
•Roads, flyover/underpass/ tunnel & bridges development (Sumatera, Java, NTB, Kalimantan, Sulawesi, Maluku & Papua)
•Flood and lava control, management of urban main drainage and coastline security, management of dams, embung, and other water containers buildings, raw water supply and management
Ministry of Religious Affairs
(IDR1.792 trillion):
•Revitalization and Development of Hajj Dormitory (11 locations)
•Development/rehabilitation of Religious Affairs Office (256
KUA)
•Development of the State Islamic Higher Education building and facilities (32 PTKIN)
2017
IDR16.76 Trillion
Ministry of Transportation
(IDR4.983 trillion):
•Elevated & Double Track Railways (Jabodetabek, Central Java, East Java & Sumatera).
Ministry of Public Works &
Housing (IDR7.226 trillion):
•Roads, flyover/underpass/
tunnel & bridges development (Sumatera, Java, NTB, Kalimantan,
Sulawesi, Maluku & Papua).
Ministry of Religious Affairs
(IDR1.468 trillion):
•Revitalization and Development of Hajj Dormitory (7 locations)
•Development/rehabilitation
of Religious Affairs Office (181 KUA)
•Development of the State Islamic Higher Education building and facilities (25 PTKIN)
2016
IDR13.67 Trillion
Ministry of Transportation
(IDR2.92 trillion):
•Elevated Track Railways (Medan – Kualanamu)
•Double Track Railways (Martapura – Baturaja & Cirebon – Kroya)
•Railways facilities
(Manggarai – Jatinegara & Jatinegara – Bekasi)
Ministry of Public Works &
Housing (IDR3.51 trillion):
•Roads and bridges Development (Sumatera, Jawa, NTB, Kalimantan, Sulawesi, Maluku & Papua).
Ministry of Religious Affairs
(IDR675 billion):
•Revitalization and Development of Hajj Dormitory (8 locations)
•Development/rehabilitation of Religious Affairs Office (19 KUA)
•Development of the State Islamic Higher Education building and facilities (7 PTKIN)
2015
IDR7.13 Trillion
Ministry of Transportation
(IDR1.371 trillion):
•Double Track Railways (Cirebon – Kroya)
•Double Double Track Railways (Manggarai – Jatinegara)
•Double Track Railways (Jatinegara – Bekasi)
Ministry of Religious
Affairs
(IDR200 billion):
•Revitalization and Development of Hajj Dormitory (Medan, Padang, Jakarta)
2014
IDR1.57 Trillion
Ministry of Transportation
(IDR800 billion):
•Double Track
Railways (Cirebon –Kroya)
2013
IDR800 Billion
Source: Ministry of Finance (Indonesia)
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Outstanding Value by Instrument Type Shariah portion: 12.9% (vs. among Corporate Issuers: 3.6%)
Notes: Data as of the end of December 2016; percentages valid for each issuer type.
Sources: - For government debt securities, data on tradable securities are from http://www.djppr.kemenkeu.go.id\;
- for corporate bonds, data are sourced from CTP-PLTE;
- for Bank Indonesia issuances, Bank Indonesia data are used.
In Respective
Issuer TypePer Issuer Type Per Instrument
SUN Government Debt Securities 1,486,530.25 58.5% 49.4%
SBSN Government Shariah Securities 240,593.50 9.5% 8.0%
SPN Treasury Bills 41,040.00 1.6% 1.4%
SPN-S Islamic Treasury Bills 7,700.00 0.3% 0.3%
SUN FCY Treasury Bonds in a FCY 639,186.52 25.1% 21.2%
Sukuk Negara FCY Government Shariah Securities in FCY 127,642.00 5.0% 4.2%
SBI Bank Indonesia Certificates 105,377.00 69.2% 3.5%
SDBI Certificate Deposit Bank Indonesia 46,985.00 30.8% 1.6%
Bonds Corporate Bonds (Maturity > 1year) 223,210.86 71.0% 7.4%
Notes Notes (Maturity < 1year) 77,090.00 24.5% 2.6%
ABS Asset-Backed Securities 2,808.42 0.9% 0.1%
Sukuk Corporate Shariah Bonds 11,428.00 3.6% 0.4%
Conventional 2,622,228.05 87.1%
Syariah 387,363.50 12.9%
5.1%
10.5%
Government
Bank Indonesia
Corporate
84.5%
Issuer TypeType of
InstrumentConventional or Shariah
Outstanding
Amount
(IDR Billion)
% of Total Outstanding
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Challenges & Recommendations
No Key Opportunity Areas Challenges Intervention Required
1 Talent Development Industry is suffering from lack of good talents
especially in capital market to help drive the
industry
• Develop local talent by encouraging conventional investment bankers to join the industry
• Scholarship program, not only for the regulator, but also for scholars
• Expatriate-friendly policies
2 Encouraging Issuers to
issue Sukuk
Issuers need extra handholding when it comes
to issuing Sukuk
• Detail manual for issuing Sukuk with standardised Shariah structures
• Other than a cap in OJK listing fee, ISE listing fee should also be capped for Sukuk
issuance
3 Encouraging Investors to
invest in Sukuk
Investors should also be encouraged to invest in
Sukuk
• Funds related to Islamic religious activities should be invested in Shariah compliant
investments
• Pension funds shall also be invested in Shariah compliant investments (the proportion
should at least be inline with the market share of Shariah finance)
• State budget (APBN) shall also be channelled through Shariah banks to finance government
sponsored infrastructure projects to help reduce COF
• Supporting industries genuinely require Sukuk instruments (i.e. Takaful, Pension Funds, &
Assets Management) should be incentivise to speed up the development
• Ideally, income tax on Shariah funds should be lower than conventional given the floating
nature of the return
4 Government is spending
USD416bio from 2014-
2019 for infrastructures
Shariah banks are still facing some structural
issues i.e. High COF
• Mudharabah Muqayaddah product can be a unique product for Shariah banks to facilitate
depositors to provide financing directly to government infrastructure projects
• Lowering RWA calculation (by 10pts) if Shariah banks are financing SOEs
5 Complete product range
for Financing & Hedging
Instruments
Limited products availability especially when it
comes to revolving financing and hedging
instrument products
• Commodity Murabaha structure, as the basis for revolving financing & hedging instruments,
should be accepted
• More flexible liquidity instruments
Thank You
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