Indonesia delays its first dollar sukuk issuance

JAKARTA, July 18 (Reuters) - Indonesia's finance ministry has postponed its first dollar Islamic bonds, or sukuk, to November from October due to lower business activities during the Muslim fasting month of Ramadan, a senior official said on Friday.

The government had said it expected to sell dollar sukuk to raise as much as $1 billion in October and rupiah Islamic bonds equivalent of about $1 billion in August to help plug the budget deficit.

"We revised the schedule for international sukuk issuance due to the fasting period and Eid Al-Fitr. In the Middle East, business activities are minimal," the ministry's treasury director general, Rahmat Waluyanto, told reporters.

"The issuance is likely to be, at the latest, in the second week of November."

Sukuk comply with sharia, or Islamic law, which bans lending on interest. Bond holders are instead paid income derived from assets such as rent from property or commercial transactions such as trade in goods and services.

The government of the world's most populous Muslim nation is finding it increasingly costly to sell conventional bonds because of rising inflation and hopes to capitalise on growing demand for sukuk.

The finance ministry also published a timetable of rupiah sukuk on Friday, expected to be issued in late August.

Indonesia, the largest economy in Southeast Asia, still lags neighbours such as Malaysia in developing markets that comply with Islamic law. [nJAK106836]

But with Muslims accounting for 85 percent of its 226 million people, the country is a huge potential market for the Islamic finance industry. (Reporting by Adriana Nina Kusuma, writing by Andreas Ismar, Editing by Sugita Katyal)