02 April 2019
Issuer: Republic of Indonesia
Size: $1.25 billion
Maturity: 1 March 2023
Use of proceeds: Eligible categories:
- Renewable energy;
- Energy efficiency;
- Resilience to climate change for highly vulnerable areas and sectors/disaster risk reduction;
- Sustainable transport;
- Waste-to-energy and waste management;
- Green tourism;
- Green buildings; and
- Sustainable agriculture
External review: Cicero (Medium green)
Lead managers: Abu Dhabi Islamic Bank, CIMB Group, Citigroup, Dubai Islamic Bank and HSBC
Credit rating: Baa3 (Moody's), BBB- (Fitch) and BBB (S&P)
Other highlights/notable features: First sovereign green issue from Asia. Biggest emerging market sovereign green deal. Biggest green sukuk.
Standards/Principles: Aligns with the Green Bond Principles and the Asean Green Bond Standards
Indonesia's first sovereign green deal marked a milestone in the market's evolution. The $1.25 billion transaction was the first green sovereign issue from Asia, and the largest green sukuk to date.
Strong demand for the paper was evident during the roadshow in January and February last year and the deal was sharply increased in size, from an expected $500 million - $1 billion. Similarly, the 'profit rate' on the five-year sukuk was reduced from initial price guidance of 4.05% to 3.75%.
Feedback from investors was "very positive", confirmed one source close to the deal.
The issuance was the fifth sovereign green issue, following green bonds from Poland, France, Fiji and Nigeria, but it dwarfed the other emerging market issues.
Indonesia is a particularly important participant in the battle against global warming, given the size of its population (the fourth largest of any country) and its extensive tropical rainforests. The 'Green Bond and Green Sukuk Framework' that underpins the deal aligns with the country's pledge in the 2015 Paris Agreement to reduce its greenhouse gas emissions by at least 29% below a 'business-as-usual' trajectory by 2030.
Proceeds from the sukuk can be used to finance both mitigation and adaptation projects. A second party opinion from Norway's Cicero said the framework "is in alignment with the Green Bond Principles, the Asean Green Bond Standards and the new regulations of the Republic of Indonesia Financial Services Authority for green bonds".
Cicero assigned the deal a 'medium green' label. It welcomed the fact that new fossil-fuel based power generation, large-scale hydropower plants and nuclear-related assets, are explicitly excluded from the list of eligible projects. It sounded a note of caution, however, that "there is a possibility that some eligible green projects include an element of deforestation."
This concern was echoed by one of our judges, who said: "While the framework was good, it's hard to ignore Indonesia's track record with biodiversity conservation and habitat destruction."