Indonesia raises $1.65bln in first Asian sovereign green bond sale

HONG KONG/JAKARTA (REUTERS) - Indonesia has become the first Asian country to sell "green" bonds internationally in a US$1.25 billion (S$1.65 billion) deal as one of the world's largest greenhouse gas emitters tapped into investor interest in climate-friendly investments.

Globally, US$155.5 billion of so-called green bonds were sold last year, according to the London-based Climate Bonds Initiative. But only a handful of governments have themselves sold such deals, where the proceeds are earmarked for investment in environmentally friendly projects.

Indonesia on Friday (Feb 23) sold US$1.25 billion in five-year green Sukuk bonds - which means the deal conforms to Islamic finance norms as well. The deal carried a coupon of 3.75 per cent compared with the 4.05 per cent rate that bankers initially used as guidance for investors.

Indonesia is considered one of the world's top emitters of greenhouse gases, particularly due to its regular devastating forest fires blamed on clearing forests and peatlands for agriculture. President Joko Widodo has committed to cut emissions by at least 29 per cent by 2030 from business-as-usual levels and approved a two-year extension to a moratorium on issuing new licences to use land designated as primary forest and peatlands.

Indonesia has also set targets to cut the use of coal for power generation and aims for renewables to make up nearly one-quarter of its energy mix by 2025 from around 12 per cent at present, with around 1,800 megawatts (MW) of wind projects targeted for completion.

But despite such commitments environmentalists say more needs to be done to meet its targets and prevent repeats of the massive forest fires in 2015, often blamed on the draining of peatland forests and land clearance for crops such as palm oil.

Documentation for the new bonds said Indonesia had confirmed no financing would go to fossil-fuel based infrastructure, nor projects involving the burning of peat. But it did warn that some projects might still include "an element of deforestation".

Global green bond issuance hit a record for the fifth consecutive year in 2017 and bankers expect further growth in the market this year.

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 sizeable amounts of green bonds include Poland - the first-ever - and France.

Luky Alfirman, head of the Budget Financing and Risk Management office at Indonesia's Finance Ministry told reporters on Friday the proceeds from its green bonds would be used to finance projects such as renewable energy, green tourism 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.

CIMB, Citigroup, Dubai Islamic Bank PJSC , HSBC and Abu Dhabi Islamic Bank were bookrunners on the deal.

Indonesia also on Friday raised US$1.75 billion selling a 10-year sukuk bond at the same time as the green deal. The longer-dated paper sold with a coupon of 4.4 per cent, down from initial guidance of 4.7 per cent.

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