Luky Alfirman (center), head of the Budget Financing and Risk Management office at Indonesia's Finance Ministry told reporters on Friday the proceeds from its green bonds would be used to finance projects such as renewable energy, green tourism and waste management.(Photo: Indonesia Finance Ministry)

JAKARTA (TheInsiderStories) – Indonesia Ministry of Finance has issued a US$1.25 billion of five-year green bond on Friday (23/2), which is designed to comply with Islamic Law. This issuance marked Indonesia as the first Asian country to sell a sovereign green sukuk bond.

One banker working on the deal said that due to “remarkable demand”, pricing was tightened by 30bps, reducing the yield to 3.75 per cent.

Luky Alfirman, head of the Budget Financing and Risk Management office at Indonesia’sFinance Ministry told reporters on Friday the proceeds from its green bonds would be used to finance projects such as renewable energy, green tourism and waste management.

The government has also said it will take up more projects to address climate change mitigation and adaptation, which requires alternative financing.

CIMB, Citigroup, Dubai Islamic Bank PJSC, HSBC and Abu Dhabi Islamic Bank were bookrunners on the deal.

Indonesia also raised $1.75 billion selling a 10-year sukuk bond at the same time as the green deal. The longer-dated paper sold with a coupon of 4.4 percent, down from initial guidance of 4.7 percent.

The proceeds of green bonds are allocated to climate or environment-related projects, such as renewable energy, sustainable transport, waste management and green buildings.

The green finance market has grown rapidly in recent years, with issuance reaching a record $155bn in 2017, according to Moody’s.

Early February, The Indonesia Stock Exchange (IDX) made a bold step by joining the Climate Bonds Initiative Partner Program, the sixth stock exchange to partner with the Climate Bonds. This signals seriousness of the exchange management to develop green bond market in Indonesia.

Sean Kidney, CEO of Climate Bonds Initiative mentioned Indonesia has huge pipeline in green investment. Some projects are capable to be financed by the eco-friendly scheme such as investment in railway in Java, the water infrastructure investment and green and energy efficient building in big cities.

Global green bond issuance hit a record for the fifth consecutive year in 2017 and bankers expect further growth in the market this year.

In Asia, Chinese and Indian companies have led the way in tapping the green market to finance environmentally friendly projects but governments had until now stayed away. Worldwide, countries to have sold sizeable amounts of green bonds include Poland – the first-ever – and France.

Email: elisa.valenta@theinsiderstories.com

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