The Bank of New York Mellon has been appointed by the Republic of Indonesia to provide multiple corporate trust services for Indonesias first ever Sharia-compliant mandatory exchangeable sukuk.
Priced at USD650 million in a five-year deal, Sukuk issues are securities that comply with Islamic law and its investment principles.
The Bank of New York Mellon will act as delegate trustee, principal paying agent, transfer agent, and registrar.
This issue is a notable transaction in many ways. As well as being Indonesias maiden sukuk, it is the largest sukuk, or Islamic bond, since Dubai Ports in June 2007 and the first from a country outside the Gulf Cooperation Council (GCC) since Pakistan in 2005.
The issue is an ijara sukuk, launched out of Perusahaan Penerbit SBSN Indonesia I (PPSI-I), a special purpose vehicle holding beneficial rights over approximately 66 real properties used for government purposes, including buildings, improvements and fixtures thereon, located in Bandung and Jakarta. This issue reopens a market that has been closed since Bahrain sold a USD350 million sukuk in March 2008.
“Our work for the Indonesian Government highlights the important role our company plays in supporting Islamic transactions and other complex structured finance deals globally,” said Gary Lew, head of Asia Pacific, Corporate Trust at The Bank of New York Mellon.
The sukuk comes as Indonesian markets are enjoying one of their rosiest periods in months, thanks to market relief at the legislative election passing off smoothly, the strong prospect of President Susilo Bambang Yudhoyono being re-elected in July and positive regional sentiment. Indonesia is in better economic shape than most places in the region and, while its economy is slowing, prices of its key soft commodities like palm oil are rising strongly, added Lew.
Ijara is a sale lease-back arrangement, whereby an asset is bought by a bank (or investor) and then rented to a client for a fee that includes the purchase price and the profit earned during the rental period. The ijara principle is increasingly preferred over alternative types of structure, such as mudaraba and musharaka, which contain profit-sharing components and hence greater exposure to market turbulence. Ijara sukuk are relatively straightforward to create and are less risky, plus they are more widely endorsed by Shar’iah scholars. S&P estimates that ijara structures made up more than 45% of sukuk issued in 2008.