JAKARTA (TheInsiderStories) – PT Sarana Multi Infrastruktur (SMI), an Indonesian state-owned enterprise has issued the first green bond in Indonesia worth of Rp500 billion (US$35.00 million), it said in an official statement today (10/07). The unit of Ministry of Finance (MoF) has plan to issue green bond as much as of Rp3 trillion within a few years.
The issuance of the green bond is an import step taken by SMI to support the achievement of the Sustainable Development Goals in the country. SMI’s commitment is in line with the commitment of the Government of Indonesia in realizing the Paris Agreement’s commitment to protect and sustain ecosystems and environmental eminence.
President Director, Emma Sri Martini stated the Center for International Climate Research-Oslo, the world’s leading environmental research center (CICERO) has given SMI a Medium Green opinion. She added, SMI will allocate the proceeds of green bond to finance sectors such as renewable energy, clean transportation, as well as sustainable water and waste management.
As the Federal Reserves and Bank Indonesia interest rates raised, some investors indicated to withstand the action after the bond coupon and choose to wait for certainty. However, Sri Martini said, during the best effort period, there was more demand of SMI Green Bond amounting to Rp145 billion, bringing the total of first emissions to Rp500 billion.
She stated: “In this first emission, we do not prioritize its size amid the interest rate hikes. The first emission is more to activate the offer, while for future emissions we will launch it at a more conducive condition through the offer facility of Rp3 trillion.”
The World Bank Group as one of the pioneers of the green bond market with a total value of more than $11 billion issuance, has provided technical assistance with CICERO to SMI in preparing a green bond framework that is aligned with the internationally-developed Green Bond Principles and ASEAN Green Bond Standards.
This has established Indonesia as one of the first Southeast Asian countries to adopt both standards. This collaboration took place under a broader capital market and infrastructure finance technical assistance programs supported by the Swiss State Secretariat for Economic Affairs and Global Affairs Canada.
Yongmei Zhou, World Bank Program Leader for Indonesia and Timor-Leste stated: “With this bond, SMI has demonstrated its commitment and innovative financing capability in supporting sustainable infrastructure development in Indonesia. It is uniquely positioned to inspire other corporations to contribute to the country’s resilience against climate change.”
Before SMI, its holding MoF has issued a $1.25 billion of five-year green bond on Feb. 23, 2018, which is designed to comply with Islamic Law. This issuance marked Indonesia as the first Asian country to sell a sovereign green sukuk bond.
Luky Alfirman, head of the Budget Financing and Risk Management office at MoF said, the proceeds from its green bonds would be used to finance projects such as renewable energy, green tourism, green building 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.
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. The green finance market has grown rapidly in recent years, with issuance reaching a record $155bn in 2017, according to Moody’s Rating Services.
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 size-able amounts of green bonds include Poland – the first-ever – and France.
Thus far, seven sovereign issuers have sold green bonds for a combined
equivalent of $25.5 billion. The government of Poland (A2 stable)
announced the inaugural sovereign green bond issue in December 2016, and
since then France (Aa2 positive), Fiji (Ba3 stable), Nigeria (B2 stable),
Belgium (Aa3 stable) and Lithuania (A3 stable) have all issued green
bonds. The government of Indonesia (Baa2 stable) unveiled the first
sovereign green sukuk early this year.
“Green bond issuance provides a strong signal of a government’s
commitment to its climate and environmental policy agenda and, in
particular, how it intends to raise capital to implement its Paris
Agreement commitments,” said Rahul Ghosh, a Senior Vice President at
Moody’s in a statement on July 9.
He said, the diverse use of proceeds from the sale of sovereign green bonds will support investor demand for the securities. Sovereigns tend to spend a
higher proportion of proceeds on a range of projects, including clean
transportation, waste management and land use, whereas the broader green
bond market is predominantly used to fund energy-related projects. As a
consequence, green sovereign bonds enable investors to diversify their
However, the diverse use of proceeds also presents the market for
sovereign green bonds with a challenge in terms of granular reporting.
While there is consensus on how to measure environmental impact for
renewable energy-related projects, there is less consensus around how to
measure it for projects such as land use and climate adaptation.
Sovereign issuers are taking steps to ensure effective management of green
bond proceeds, including enacting legislation to ring-fence funds,
on-lending proceeds to public investment companies, and committing to
independent audits by external parties.
In addition to the green bond, SMI also issued an Rp1 trillion SUKUK as a part of the first phase of another Rp3 trillion program. SMI has been providing sharia-based financing since 2017. It also became one of SMI’s commitment to encourage the entry of sharia market players in infrastructure development in Indonesia.
SMI was founded on Feb. 26, 2009 which has a mandate as a catalyst in supporting the acceleration of infrastructure development in Indonesia. SMI plays an active role in supporting the implementation of PPP and encourages the acceleration of infrastructure development in the region through regional financing product.