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Friday, September 30, 2022

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Indonesia’s Sukuk: Paving the way for green sovereign Islamic papers

February was a historical month for the global Islamic debt capital markets as the world’s debut US dollar-denominated green sovereign Sukuk facility was launched by the Republic of Indonesia. The transaction comprised a US$1.25 billion five-year green Sukuk facility as well as a US$1.75 billion 10-year Sukuk tranche.

Both tranches of the Sukuk were structured based on the Shariah principles of Wakalah. “The Sukuk assets under this issuance consist of state-owned assets including land and buildings (51%) and project assets which are under construction or to be constructed (49%),” according to a document from Dubai Islamic Bank (DIB) as viewed by IFN.

Investor roadshows were conducted across key global financial hubs like Kuala Lumpur, Paris, London, Amsterdam and Dubai. “Paris and Amsterdam were considered due to the high concentration of socially responsible investors,” explained the bank.

Initial price guidance was released at the 4.05% area for the green Sukuk tranche and 4.7% area for the 10-year Sukuk tranche, targeting an intraday execution. After around eight hours of bookbuilding, the final guidance was released at 3.75% for the five-year tranche and 4.4% for the 10-year tranche. “The transaction was in line with the Republic’s ongoing objectives to strengthen the global Islamic financial market and commit to environmentally sustainable green funding,” DIB expounded. Investors were from various regions around the world and included fund managers (FMs), insurance companies (Ins), pension funds (PFs), sovereign wealth funds (SWFs), central banks (CBs) and private banks (PBs).

The most populous Islamic nation in the world has initiated various efforts to accommodate the green Sukuk facility. Among them are the implementation of the Green Bond and Green Sukuk Framework, obtaining a second party opinion from the Center for International Climate Research and subsequently awarded the ‘medium green’ shading and consent on certain reporting and use of proceeds obligations.

The proceeds of the green Sukuk will be used to finance or refinance expenditure directly related to ‘Eligible Green Projects’ as defined in the framework, which include renewable energy, energy efficiency, waste to energy and waste management; resilience to climate change for highly vulnerable areas and sectors/disaster risk reduction; sustainable management of natural resources; sustainable transport and agriculture; as well as green tourism and green buildings.

Republic of Indonesia’s Sukuk
US$3 billion

February 2018
IssuerPerusahaan Penerbit SBSN Indonesia III
ObligorRepublic of Indonesia
Size of issueUS$3 billion
Mode of issueSenior, unsecured, Reg S, Rule 144A
TenorGreen Sukuk: Five years Sukuk: 10 years
Issuance price100%
Profit rateGreen Sukuk: 3.75% Sukuk: 4.4%
Maturity dateGreen Sukuk: 1st March 2023 Sukuk: 1st March 2028
Joint bookrunnersDubai Islamic Bank, CIMB, Citigroup, HSBC and Abu Dhabi Islamic Bank
Green structuring advisorHSBC
Governing lawEnglish and Indonesian laws
Legal advisor(s)/counselClifford Chance
ListingNASDAQ Dubai and Singapore Exchange Securities Trading
StructureWakalah
Investor breakdownSee Chart 1

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