Sovereign Indonesia Issues its Largest-ever Regular Annual International Sukuk Wakalah with a Two Tranche US$3.25bn Offering Including a US$1.5bn Green Sukuk

For a regular annual proactive issuer of sovereign Sukuk, the Government of Indonesia is adept at notching up global firsts in its issuance programme and strategy. This is particularly so in the international and Green Sukuk space where Jakarta has been leading the way in several issuance metrics.

Its latest offering, a two-tranche US$3.25 billion Sukuk Wakalah, launched at end May and closed on 6 June 2022, is no exception. According to the Directorate of Islamic Financing at the Directorate General of Budget Financing and Risk Management, Indonesian Ministry of Finance, the issuance is the largest single Global Sukuk transaction ever issued by the Republic.

The issuance comprised a US$1.75 billion 5-year tranche maturing in June 2027, and a US$1.5 billion 10-year year (Green) Reg S/144A Trust Certificate tranche due in June 2032.

The proceeds from the Green Sukuk according to the Directorate General “will be used to finance or refinance expenditure directly related to ‘eligible Green Projects’ as defined in Indonesia’s Green Bond & Green Sukuk Framework.”

The Wakalah Sukuk was issued through Perusahaan Penerbit SBSN Indonesia III (PPSI-III), a legal entity established by the Ministry of Finance on behalf of the Obligor, the Republic of Indonesia, solely for the purpose of issuing Sharia’a compliant securities in foreign currencies in the international markets.

The Indonesian Ministry of Finance mandated Dubai Islamic Bank, CIMB, Deutsche Bank, HSBC and Standard Chartered as Joint Lead Managers and Joint Bookrunners to arrange a series of investors meetings and calls in several international markets in the UK, Europe, the Middle East, Asia and with Offshore US Accounts. HSBC and Standard Chartered Bank also acted as Joint Green Structuring Advisors. The local PT Danareksa Sekuritas and PT PT Trimegah Sekuritas Indonesia Tbk acted as Co-Managers for the transaction.

This latest Sukuk Wakalah issuance, like the previous ones, is pursuant to the US$10 billion Trust Certificate Issuance Programme launched by Indonesia in May 2015 through PPSI-III. This is the thirteenth US dollar-denominated Sukuk issuance by Indonesia and the tenth issuance under its Trust Certificate Issuance Programme.

According to the Directorate General of Budget Financing & Risk Management at the Indonesian Ministry of Finance, an initial price guidance was set on 24 May 2022 at around 4.75% for the 5-year and 5.10% for the 10-year Green tranche, leveraging on a steady Asia market session overnight and successfully navigating volatile market conditions.

The Ministry of Finance was able to compress the initial price guidance by 35 basis points (bps) on the 5-year tranche and by 40 bps on the 10-year, and announced final price guidance at 4.40% for the 5-year tranche and 4.70% for the 10-year tranche.

The Wakalah Sukuk certificates were subsequently priced at par and with a profit rate of 4.40% on the 5-year tranche, and 4.70% on the 10-year tranche. “The issuance totalled to US$3.25bn, which is the largest ever Global USD Sukuk deal by the Republic in history, a feat achieved amidst intraday volatility,” explained a Ministry of Finance official.

The transaction attracted robust demand, with the final order book amounting to US$10.8 bn combined – an oversubscription rate of more than 3.3x of the issuance. Amidst challenging market conditions, the transaction attracted interest from diverse investor base and geography, “showcasing strong investment appetite for Indonesia given the Republic’s strong following and economic fundamentals.”

The issuance with the 5-year tranche was distributed 35% to Asia, 30% to Middle East investors, 18% to U.S and 17% to Europe. By investor type, the tranche is allocated 41% to asset managers/fund managers, 30% to financial institutions/banks, 20% to central banks, 8% to insurance/pension funds and 1% to private banks.

The 10-year tranche was distributed 38% to Asia, 27% to Middle East investors, 20% to U.S and 15% to Europe. By investor type, the tranche is allocated 49% to asset managers/fund managers, 30% to financial institutions/banks, 13% to insurance/pension funds, 7% to central banks and 1% to private banks.

According to the Directorate of Budget Financing & Risk Management, the transaction achieved several notable milestones. These include: i) the largest ever Global USD Sukuk transaction from the Republic; ii) the largest Green Sukuk tranche ever printed globally; iii) the largest issuance from Indonesia year-to-date; iv) the first Green Sukuk tranche with a 10-year maturity by the Republic; and v) a robust investor order book that allowed pricing below fair value across all tranches.

Indonesia is the world’s most proactive issuer of Green Sukuk. In 2021 it issued a 30-year US$750 million Green Sukuk as part of a US$3 billion transaction – its fourth such global Green Sukuk issuance outside the retail Green Sukuk issued at the end of 2019. Jakarta issued a US$750 million Green Sukuk Wakala with a tenor of 5 years in June 2020 as part of a US$2.5bn three-tranche transaction; a similar US$750 million Green Sukuk Wakala with 5.5 year tenor in February 2019 as part of an US$2 billion transaction; and a 5-year US$1.25 billion Reg S/144A Green Sukuk Wakala in February 2018, which was part of a two-tranche US$3 billion transaction.

This latest transaction, says the Ministry of Finance, “continues a tradition of bringing to market landmark Green Sukuk deals since Indonesia’s debut Green Sukuk in 2018. The Republic this year printed the largest ever Green Sukuk tranche globally, backed by the country’s significant pool of Green assets. This issuance further evidenced Indonesia’s dedication and long-term commitment to green and sustainable financing, as part of its effort in combatting climate change. The 10-year Green Sukuk tranche is the fifth global Green Sukuk issued by the Republic and the first since the Republic published its SDGs Government Securities Framework in August 2021.”

The Sukuk are structured based on the Sharia’a principle of Wakalah and have obtained Sharia’a opinion from DSN MUI as well as from CIMB Islamic Bank, Khalij Islamic, Sharia Adviser of Deutsche Bank AG, the Internal Sharia’a Supervisory Committee (ISCD) of Dubai Islamic Bank, HSBC Global Shariah Supervisory Committee and Standard Chartered Bank Global Sharia Supervisory Committee. The transaction is aligned with the Republic’s strategy to finance the state budget, as well as its commitment to develop and improve the liquidity of the Sukuk market in the region.

The underlying Sukuk Wakala assets, confirmed the Directorate General in a statement, comprise a pool of state-owned assets including land and buildings (accounting for 51 per cent of the asset pool) and project assets that are under construction or to be constructed (accounting for the remaining 49 per cent of the asset pool).

The Wakalah Sukuk certificates are listed on the Singapore Stock Exchange and NASDAQ Dubai (dual-listing). Each tranche has been assigned a rating of Baa2 by Moody’s Investor Service, BBB by S&P Global Ratings Services and BBB by Fitch Ratings.

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