The Republic of Indonesia (RoI) demonstrated its commitment towards sustainable financing when it priced its inaugural blue bond as part of its fund raising in the Samurai bond market.
The sovereign on May 19 priced a four-tranche offering totalling 104.8 billion yen (US$745 million), which included two tranches of blue bonds – 14.7 billion yen for seven years and 6 billion yen for 10 years. The other two tranches are conventional bonds amounting to 46.9 billion yen for three years and 37.2 billion yen for five years.
The seven-year blue bond has a coupon of 1.20% with a re-offer spread over Tokyo overnight average rate (Tona) yen mid-swap of 80bp, while the 10-year tranche carries a coupon of 1.43% and a re-offer spread over Tona yen mid-swap of 85bp.
This is the ninth consecutive year the RoI has accessed the Samurai bond market since 2015 and the blue bond issuance is also in line with the government financing strategy of diversifying its funding sources as well as widening its investor base. The transaction is the first sovereign blue bond issued that is publicly offered in accordance with the International Capital Market Association (ICMA) principles.
The issuance of the blue bond is based on the Sustainable Development Goal (SDG) Government Securities Framework the RoI issued in 2021, which has obtained second-party opinion from CICERO and the International Institute for Sustainable Development (IISD).
In executing the transaction, the sovereign held a group presentation to introduce the SDG framework and blue financing policy to Japanese investors.
The proceeds from the offering will be used to plug the budget deficit in 2023 and the government intends to invest an amount equal to the net proceeds from the bond issuance into projects that may qualify as eligible expenditures under the RoI SDG framework. The eligible sectors are tracked by a climate budget tagging mechanism to tag eligible SDG expenditures with blue focus.
“The issuance of the blue bonds will complete the state budget’s financing portfolio and evidences the government’s stronger commitment to sustainable financing,” says Suminto, director-general of budget financing and risk management at the Ministry of Finance. “We also hope the issuance of blue bond will open other blue financing alternatives for Indonesia.”
Vivi Yulaswati, deputy for maritime affairs and natural resources at the Ministry of National Development Planning/Bappenas, adds: “We hope the issuance of Samurai blue bonds will accelerate the development of the maritime and marine sector in a better and more sustainable blue economy concept.”
Daiwa Securities, Mitsubishi UFJ Morgan Stanley Securities, Mizuho Securities and SMBC Nikko Securities were the joint bookrunners for the transaction.