RoI achieves hefty price compression and lowest yields in new sukuk offering
The issuance includes a green sukuk tranche demonstrating RoI’s commitment to sustainable financing
22 Jun 2020 | Chito Santiago

THE Republic of Indonesia (RoI) returned to the global sukuk market when it priced on June 16 a three-tranche offering totalling US$2.5 billion that includes a green sukuk.

The Reg S/144A deal was priced at par and comprised of a five-year green sukuk amounting to US$750 million with a yield of 2.30%, a 10-year conventional sukuk amounting to US$1 billion with a yield of 2.80% and a 30-year conventional sukuk amounting to US$750 million with a yield of 3.80%. All three tranches are structured based on the Shariah principle of wakala.

The transaction generated strong investor demand that drove pricing well below their indicated fair value and achieved a hefty price compression of 70bp each from their respective initial price guidance of 3.00% for five years, 3.50% for 10 years and 4.50% for 30 years.

The yields for five-year and 10-year tranches were the lowest ever achieved by the RoI for such tenors across both conventional bond and sukuk issuances in the US dollar bond market. This is also the first ever 30-year offering by the sovereign with the lowest coupon ever of the global sukuk deal in the world, as well as the largest ever 30-year sukuk out of Asia.

The transaction took advantage of an opportunistic window within a period of heightened volatility in the global capital markets. It attracted positive response from global and domestic investors with an order book of US$16.70 billion, reinforcing the robustness and depth of the sukuk market and the strong investor appetite for the RoI credit.

By dedicating the five-year tranche as green sukuk for climate change funding, the RoI continues to show its commitment, leadership and contribution to sustainable financing. This is the third global green sukuk printed by the sovereign since 2018 outside of the retail green sukuk it issued at the end of 2019. In January 2019, it priced a similar US$750 million green sukuk for 5.5 years with a periodic distribution rate of 3.90% per annum.

The latest transaction was in line with the government’s financial objectives, including financing its fiscal expenditures to handle the impact of the Covid-19 pandemic, as well as strengthening the RoI’s position in the global Shariah market and supporting the development of Shariah financing in the region.

Structured based on the Shariah principle of wakala, the underlying assets for this deal consist of state-owned assets, including land and buildings (51%) and project assets that are under construction or to be constructed (49%).

In terms of geographic distribution, the five-year green sukuk was sold 32% to Islamic and Middle East investors, 45% to Asia (including 5% to Indonesia), 12% to the US, and 11% to Europe.

The 10-year tranche was allocated 31% to Islamic and Middle East investors, 39% to Asia (including 5% to Indonesia), 18% to the US, and 12% to Europe. The 30-year sukuk was distributed 10% to Islamic and Middle East investors, 49% to Asia (including 5% to Indonesia), 8% to the US, and 33% to Europe.

The sukuk will be drawn through Perusahaan Penerbit SBSN Indonesia III (PPSI-III) under its existing US$25 billion trust certificate issuance programme. PPSI-III is a legal entity set up for the purpose of issuing the country’s Shariah-compliant securities in foreign currencies in the international capital markets.

BNP Paribas, Dubai Islamic Bank, HSBC, Maybank and Standard Chartered were the joint bookrunners and lead managers for the transaction, with BNP Paribas and HSBC acting as the joint green structuring adviser. Danareksa Sekuritas and Trimegah Sekuritas Indonesia were the co-managers for the deal.

This is the third time the RoI accessed the US dollar bond market this year. In January, it raised a dual-tranche US$2 billion offering, plus a one billion euro (US$1.12 billion) issuance and followed it up with a US$4.3 billion deal in three tranches in April that included the first-ever 50-year bonds from an emerging market sovereign issuer to help fund its Covid-19 relief and recovery efforts.

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