Indonesia is the world’s fourth most populous country with 262 million citizens. The country has extensive tropical landscape and seascape, high biodiversity and high carbon stock values and resources; susceptible to climate-induced disasters. For this, Indonesia is strongly committed to combat climate change, ratifying the Paris Agreement in 2016 and submitted its Nationally Determined Contributions.
President Joko Widodo has shown support through developing the Nawacita program, nine priority actions on shifting to a low-carbon and climate-resilient development path that needs to be integrated in development policies, strategies and programs.
The Republic has developed Mitigation, Adaptation and Biodiversity strategies and its own Budget Tagging Process to identify projects with carbon emission reduction target (“Eligible Green Projects”) within nine Eligible Green Sectors involving up to 17 line ministries in 2018.
To support these ventures, the Ministry of Finance developed a Green Bond and Green Sukuk Framework, a guideline to issue a financial instrument under which the proceeds will be exclusively applied to finance or refinance in part or in full new and/or existing Eligible Green projects, aligned with the core components of the Green Bond principles
Republic of Indonesia appointed Citi as one of the Joint Lead Managers for their debut Green Sukuk offering, having worked on communicating Green elements within the investor presentation. The transaction managed to attract specific Green investors given the Republic’s commitment to environmentally friendly projects, on top of positive investor feedback on Indonesia’s credit story.
While the market witnessed volatility post-Fed announcement in January 2018 induced by expectations of U.S. inflation and rate hikes, the transaction managed to access a window of relative stability without any competing supply for aggregate size of USD 3.0 billion, maximizing green structure and full investment grade ratings to set alltime low spreads to U.S. Treasury for any sukuk offerings by the Republic of Indonesia. On the back of remarkable demand, the Republic of Indonesia was able to tighten, and successfully priced at the Final Pricing Guidance of 3.75% and 4.40% — 30bps tighter than Initial Pricing Guidance, in line with the Republic’s ongoing objectives of strengthening the global Islamic financial market, and represents the Republic’s commitment towards environmental sustainable green funding.