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Green Finance / Treasury & Capital Markets
Indonesia issues first Asian sovereign SDG bond
Sovereign also conducts tender offer for eight existing USD bonds
Chito Santiago 15 Sep 2021

The Republic of Indonesia (RoI) returned to the euro bond market and successfully priced on September 13 a debut 500 million euros (US$588.20 million) Sustainable Development Goal (SDG) offering, representing an important step forward in its commitment to the achievement of SDGs and a major advance for sustainable finance.

The SEC-registered 12-year issuance was priced at 99.419% with an interest rate of 1.30% per annum to offer a yield of 1.351%. This was equivalent to a spread of 118bp over mid-swap rate, or a price compression of 27bp from the initial price thought level of between 140bp and 145bp. On the back of strong demand from environmental, social and governance (ESG)-focused accounts, the sovereign was able to price flat to its outstanding curve with a zero new issue concession, and inside a potential conventional issuance. The offering achieves the tightest pricing – on a spread basis – by RoI in the 12-year tenor for a euro-denominated issuance.

In executing the transaction, the sovereign arranged a series of non-deal investor update calls on September 7-8 to introduce to global investors its newly-published SDGs government securities framework, on which CICERO and the International Institute for Sustainable Development (IISD) provided a second-party opinion, and to discuss its United Nations’ SDG roadmap. The virtual roadshow garnered positive responses and was well-received by the global investors base, with over 70 participating accounts across both traditional and ESG-focused portfolios.

The SDG offering highlights the RoI’s leadership in sustainable finance as the first Asian sovereign SDG conventional bond issuance and the first SDG bond framework verified by CICERO and IISD globally. The RoI intends to invest an amount equal to the net proceeds in projects that may qualify as eligible expenditures under its SDG government securities framework.

All green and SDG securities issued under the RoI SDG framework are aligned with international standards, including the International Capital Market Association principles.

Apart from the euro SDG offering, RoI also accessed the US dollar bond market in another fund-raising, as it priced on September 13, a dual-tranche issuance totalling US$1.25 billion to fund its liability management exercise.

The transaction comprised of US$600 million, which was raised with the re-opening of RoI’s existing 2.15% 2031 bonds. The tap was priced at 99.734% with an interest rate of 2.15% per annum and a yield of 2.18%. The yield was in line with the final price guidance and 32bp tighter than the initial price range of 2.50% area. The offering brought the total size of the 2031 bonds to US$1.20 billion.

The other tranche was a new 40-year bond amounting to US$650 million, which was priced at 98.225% with an interest rate of 3.20% per annum. This offered a yield of 3.28%, which was also in line with the final price guidance and 32bp inside the initial guidance of 3.60% area.

The net proceeds will be used to repurchase certain of RoI’s outstanding global bonds pursuant to its tender offer separately announced on September 13. The sovereign has invited the holders of eight existing bonds that will come due between 2022 and 2026 to submit offers to sell the old bonds for cash. The tender offer will expire at 5pm New York time on September 17.

The bond re-opening attracted a total order book in excess of US$2 billion from 58 accounts with 37% of the demand coming from Asia-Pacific, 35% from the US and 28% from Europe, the Middle East and Africa (EMEA). Asset and fund managers accounted for 68% of the bonds; banks and brokers 20%; sovereign wealth funds, sovereigns, supranationals and agencies, and central banks 7%; insurance companies and pension funds 4%; and private banks 1%.

The 40-year bond generated a total demand of over US$1.3 billion from 89 accounts with 47% of the orders coming from Asia-Pacific, 30% from EMEA and 23% from the US. Asset and fund managers were likewise the biggest buyers of the paper with 71%, followed by insurance companies and pension funds with 18%, banks and brokers 9%, sovereign wealth funds and central banks 1%, and private banks 1%.

Crédit Agricole CIB and HSBC were the joint SDG structuring advisers for the euro transaction, as well as joint bookrunners and lead managers for both the euro and US dollar offerings, along with BofA Securities, Citi and UBS. PT BRI Danareksa and PT Trimegah Sekuritas Indonesia acted as co-managers.

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