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Friday, September 30, 2022

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Indonesia issues largest-ever global green Sukuk tranche

The Republic of Indonesia has issued its largest green Sukuk tranche to date worth US$1.5 billion on the 24th May 2022. The 10-year green tranche was issued as part of a dual-tranched US$3.25 billion issuance which included a US$1.75 billion five-year tranche. The total issuance is the country’s largest-ever global US dollar Sukuk transaction issued.

The issuance met robust demand from investors, allowing the nation to upsize its transaction to a total of US$3.25 billion. The final order size for the issuance amounted to US$10.8 billion notwithstanding volatile markets, garnering strong demand from investors across Asia, the Middle East, Europe and the US. The green tranche was distributed 38% to Asia, 27% to Middle Eastern investors, 20% to the US and 15% to Europe.

The proceeds from the green tranche will be used exclusively to finance and refinance expenditures directly related to eligible SDG expenditures with a green and blue focus under Indonesia’s SDGs Government Securities Framework.

The Sukuk facility was structured under the Wakalah concept with Ijarah and project assets listed under the pricing supplements. Payments of profits due under the Sukuk are funded by Ijarah payments, due from the country (as the lessee) to Perusahaan Penerbit SBSN Indonesia III (as the lessor) in respect of the lease of Ijarah assets and, when delivered, project assets.

“Payments of principal due under the Sukuk are funded by a combination of payment by Indonesia of the relevant exercise price under the purchase undertaking and a refund amount in respect of any project assets that are not delivered at the time of redemption,” Xuan Jin, the counsel from White & Case, told ISFI. The firm acted as the English and New York law counsel to the arrangers and dealers on the update of the program, and to the joint lead managers on the issuance of the Sukuk.

This year’s update of Indonesia’s global medium-term note program, which the Sukuk facility was issued under, involved considerable amendments to the existing Islamic structure in order to bring it in line with market standards and enable the broadest distribution of the Sukuk. In particular, the regulatory developments in Shariah standards in the UAE had an impact on the structuring of this issuance. The issuance marks the first-ever Asia Pacific (APAC) precedent fully compliant with the standards set by the UAE’s Higher Sharia Authority in line with AAOIFI principles.

“With the various elaborate amendments that have been introduced which include new partial loss concepts, tangibility event put rights, revisions to existing total loss event mechanics, consequential dissolution events and service agency expenses, we are confident that this milestone in the regional evolution of Sukuk documentation will set the path for future transactions in the APAC region,” Husayn Reza, the counsel from Allen & Overy, told ISFI. The law firm acted as the legal advisor to the issuer and the Republic of Indonesia as to English and US law.

In addition to structural updates to the program, the green tranche is also the first-ever green tranche issued under the country’s SDGs Government Securities Framework issued in 2021. The new framework has an added focus on the blue economy which promotes marine economic development to create economic growth and seeks to mitigate current and future anthropogenic damage to the marine environment.

Indonesian Global Sukuk 2022 Green Tranche

24th May 2022
Summary of terms and conditions
Issuer
Perusahaan Penerbit SBSN Indonesia III
Obligor
Republic of Indonesia
Size of issue
US$1.5 billion
Mode of issue
Syndicated drawdowns under US$35 billion Sukuk program
Purpose
To finance and refinance expenditures directly related to ‘Eligible SDGs Expenditures with Green and Blue focus’ under Indonesia’s SDGs Government Securities Framework.
Tenor
10 years
Issuance price
100%
Profit rate
4.7%
Payment
Semi-annual
Currency
US dollar
Maturity date
2032
Lead manager(s)
CIMB Investment Bank, Deutsche Bank, Dubai Islamic Bank, HSBC, Standard Chartered Bank
Bookrunner(s)
CIMB Investment Bank, Deutsche Bank, Dubai Islamic Bank, HSBC, Standard Chartered Bank
Co-managers(s)
BRI Danareksa Sekuritas, Trimegah Sekuritas Indonesia
Green structuring advisor(s)
HSBC, Standard Chartered Bank
Governing law
English/ Indonesian Law
Legal advisor(s)/council
• Allen & Overy, legal advisor to the issuer and the ROI as to English and US law.
• Ary Zulfikar and Partners, legal advisor to the issuer as to Indonesian law.
• White & Case, legal advisor to the arrangers and dealers as to US and English law.
• Assegaf Hamzah & Partners, legal advisor to the arrangers and dealers as to Indonesian law.
• Clifford Chance, legal advisor to the delegate as to English law.
Islamic structure
Wakalah
Listing
NASDAQ Dubai and Singapore Exchange Securities Trading
Shariah opinion
Dewan Syariah Nasional of Majelis Ulama Indonesia, CIMB Islamic Bank , Khalij Islamic, Shariah advisor of Deutsche Bank AG London branch, Internal Sharia Supervisory Committee of Dubai Islamic Bank, HSBC Global Shariah Supervisory Committee, Standard Chartered Bank Global Sharia Supervisory Committee
Underlying asset
Ijarah and project assets listed under the pricing supplements
Obligor rating(s)
‘Baa2/stable’ (Moody’s Investors Service), ‘BBB/stable’ (S&P Global Ratings), ‘BBB/stable’ (Fitch Ratings)
Face value/minimum investment
US$200,000 and integral multiples of US$1,000 in excess thereof
Investor breakdown
Type
Asset managers and fund managers (49%), financial institutions and banks (30%), insurance and pension funds (13%), central banks (7%), private banks (1%)
Geography
Asia (38%), the Middle East (27%), US (20%), Europe (15%)

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