PT Indonesia Infrastructure Finance (IIF) made its debut in the global capital markets with its inaugural sustainability bond last year, which won Environmental Finance's Sustainability Bond of the Year Award. Its President Director Reynaldi Hermansjah explains its approach to sustainable finance
Environmental Finance: What is your approach to sustainability at IIF?
Reynaldi Hermansjah: IIF is a non-banking financial institution, focused on financing and advising infrastructure projects in Indonesia. We are 30% owned by the Ministry of Finance, through PT SMI (Persero) with the remainder owned by multilateral institutions, such as IFC, ADB and DEG, and one commercial bank, SMBC. All of our work applies sustainable financing concepts, with ESG policies and safeguards that are in line with international standards.
We see ourselves as spreading the gospel of sustainability finance in Indonesia. We don't assume that all the companies we work with already comply with our ESG requirements, but we work with them to help bring them up to international standards.
In the 12 years since we were established, we have helped finance over 55 clients across our focus sectors of telecoms, toll roads, oil and gas, renewable energy and healthcare, leveraging $139 million of our capital to enable total gross cumulative commitment financing of over $2.1 billion.
EF: In January last year, IIF issued its inaugural sustainability bond, a $150 million five-year note. What encouraged IIF to seek to raise money from the sustainable finance market?
RH: As any other non-bank financial insitution, we are not deposit-taking, so all our financing comes from shareholder loans, institutional financing and from the domestic capital market. We wanted to diversify our funding sources and tap the global bond markets. Given that all of our projects are already sustainable, it made sense to issue a sustainability bond.
EF: What are the projects that the bond will help finance? What does the sustainable infrastructure opportunity look like in Indonesia?
RH: For our initial global offering, the proceeds are earmarked for financing a waste-water management project, a green data centre, and two renewable energy projects – one wind energy and one mini-hydro project.
There is an abundance of infrastructure projects that will need financing in Indonesia over the next 10 to 15 years. As a country, we need a lot of infrastructure, whether power plants, toll roads or telecommunications. Within the market, the understanding of sustainable financing has become more common; there is going be considerable opportunity to fund sustainable projects.
We do not compete head-to-head with commercial banks but instread collaborate and 'fill in the gaps' through our structured debt-related products.
EF: The bond achieved the lowest-ever coupon and yield of any comparable offering from an Indonesian company. What do you see as the reasons for that?
RH: We were able to achieve a coupon of 1.5% and a yield of 1.75%, which was a tightening of 37.5 basis points from initial price guidance. We were very pleased with that. There were a few reasons for that outcome. First, for investors looking for an institution able to finance infrastructure projects based on an internationally accepted sustainable-based financing scheme, we are one which can provide that. Second, we benefited from our triple-A rating. Third, we are taking baby steps. We don't want to issue in a large amount. We want to first understand the market, and also understand the needs and preferences of sustainable bond investors. We also saw very strong demand for the bond: at the time of the offering, it was six to seven times oversubscribed.
EF: What reporting do you plan to do against the framework?
RH: We comply with all necessary regulations relating to issuing a global bond. As for the sustainability aspects, we have a responsibility to issue a report each year – the first was issued this February. Much of the information needed for this reporting was already collected as part of our project due diligence, we have engaged with our independent external reviewer to ensure that our reporting was in line with our Sustainability Financing Framework.
EF: What are your plans for future issuance against the Sustainable Financing Framework?
RH: We want to maximise our exposure to the capital markets and, following this successful issuance, we plan to continue to participate in the sustainable finance market, subject to our need for future funding. We tend to naturally hedge our funding, so if we are sourcing projects with revenues in Rupiah, we fund them in the local currency.
However, we see our need for US dollar financing increasing. Indonesia is seeing significant growth in data centres, with many of the big international names coming to the country. These tend to have dollar revenues so it makes sense to finance in US dollars. I therefore expect to be back in the international sustainable finance market in the near future.