Indonesia Deal of the Year
The Indonesian government recently issued US$1.5 billion in US dollar-denominated Sukuk. Despite the relatively low yield, the transaction witnessed a demand reaching almost seven times its offer with bids amounting to US$10.2 billion. The orderbook was the largest ever achieved by a sovereign Sukuk issuance in Southeast Asia. NABILAH ANNUAR reports.
Due to mature on the 10th September 2024, the Sukuk carry a return of 4.35% and are part of the government’s Trust Certificate Issuance Program set up on the 5th November 2012.
|Summary of terms & conditions|
|Issuer||Perusahaan Penerbit SBSN Indonesia III|
|Obligor||Republic of Indonesia|
|Purpose of issuance||General financing requirements|
|Trustee||Bank of New York Mellon|
|Maturity date||10th September 2024|
|Lead managers, bookrunners and Shariah advisors||CIMB Investment Bank, Emirates NBD Capital, The Hong Kong and Shanghai Banking Corporation and Standard Chartered Bank|
|Governing law||English Law Indonesian law|
|Legal advisors/counsel||Allen & Overy , White & Case|
|Listing||Singapore Stock Exchange|
|Underlying assets||51% Ijarah assets, 49% project assets|
|Rating||‘Baa3’ Stable (Moody’s), ‘BB+’ Stable (S&P), ‘BBB-‘ Stable (Fitch)|
|Tradability||144A/Reg S transaction, with access to the US investor base (QIBs), as well as Asian, European, Middle Eastern investors|
|Face value/minimum investment||US$200,000 and integral multiples of US$1,000 in excess thereof|
Speaking to IFN, Robert Pakpahan, Indonesia’s director general of debt management, said that the proceeds from the issuance would be channeled to meet the country’s general financing requirements. “The proceeds will be applied by the issuer for the purchase of the Ijarah assets and project assets from the Republic of Indonesia, and the Republic of Indonesia will use the proceeds received to meet part of its general financing requirements.”
Indonesia’s Trust Certificate Issuance Program was initially set up at US$3 billion in November 2012. Through an SPV, Perusahaan Penerbit SBSN Indonesia III, the first drawdown was trust certificates worth US$1 billion due in 2022. In September 2013, the Republic of Indonesia subsequently upsized the program to US$5 billion and auctioned US$1.5 billion trust certificates due 2019. The country regularly issues local currency Islamic paper including: Islamic fixed rate bonds, project-based Sukuk and retail Sukuk, all of which utilizes the Ijarah structure.
The issuance incorporates the Wakalah principle, a structure that effectively utilized the government’s existing assets, and which afforded it the flexibility to use future infrastructure assets. “We worked hard to ensure that the innovation introduced, i.e. infrastructure projects under construction and/or to be constructed to be part of the underlying assets, met all requirements from the Shariah, legal and accounting perspectives. It was a thorough exercise that understandably took some time to conclude, but the result is a unique structure that allows us to access a new pool of assets for our Shariah compliant fund-raising exercises,” explained Pakpahan.
The paper is listed on the Singapore Stock Exchange due to its efficiency and because all Indonesia’s Sukuk and global bonds have been listed there. Additionally the Singapore Stock Exchange provides the most active trading in the region.
The transaction achieved several milestones in the Sukuk space: the issuance is the largest single-tranche Sukuk issuance in 2014, it is the largest sovereign Sukuk in 2014 and the paper captured the largest orderbook for a Southeast Asian sovereign Sukuk to date.
In terms of geographical distribution, the fund-raising exercise attracted investors from the Middle East (35%), Asia (30%), US (20%), Europe (15%). As for investor type, the Sukuk was taken up by: fund managers (57%), banks (28%), central banks/sovereign wealth funds/supranational institutions (13%), others (2%).