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Jakarta Post

Govt aims to raise Rp 2t in retail green sukuk to address climate change

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Thu, November 5, 2020   /   01:07 pm
Govt aims to raise Rp 2t in retail green sukuk to address climate change Financial risk management director general Luky Alfirman (left) and Islamic finance director Suminto of the Finance Ministry speak to reporters in this file photo dated Feb. 23, 2018. (JP/Anton Hermansyah)

The government plans to offer retail green sukuk this month to raise Rp 2 trillion (US$136.6 million) to finance green projects and support the cash-strapped state budget.

The Financial Risk Management Directorate General of the Finance Ministry is to offer the non-tradable retail green sukuk series ST 007 with an annual yield of 5.5 percent and a maturity date of Nov. 20, 2022.

Retail investors can buy the Islamic bonds between Nov. 3 and Nov. 25 from as little as Rp 1 million up to Rp 3 billion at 31 official distribution partners, which include conventional and sharia-compliant banks, as well as financial technology firms.

“This sharia bond will be used to finance green projects to slow climate change and manage the coronavirus pandemic,” financial risk management director general Luky Alfirman told The Jakarta Poston Wednesday, adding that debt-fueled government spending was now crucial as “the driver of economic activity” during the coronavirus-induced downturn.

He said that proceeds from the bond sales would be used to finance projects such as those focusing on renewable energy, energy efficiency, sustainable transportation, and waste and energy management.

The COVID-19 health emergency has spurred government spending, sapped tax revenue and necessitated borrowing. The government projects a budget deficit of 6.34 percent this year, more than half the initial legal ceiling of 3 percent, to fund the Rp 695.2 trillion stimulus package to revive the economy.

Indonesia’s economy shrank 5.32 percent in the second quarter and is forecast to contract further in the third quarter to mark the country’s first recession since the 1998 Asian financial crisis.

According to Finance Ministry data, the government has sold sovereign debt papers (SBNs) worth Rp 790.6 trillion as of September, 67.6 percent of the targeted Rp 1.17 quadrillion in SBN sales for the year to finance government spending.

The government aims to raise around Rp 40 trillion from retail bond sales this year.

Fixed income analyst Ramdhan Ario Maruto of Anugerah Sekuritas Indonesia said investors might be able to buy more than Rp 10 trillion in retail green sukuk, more than five times the government’s target, because of its attractive yield.

“Although the coupon rate has decreased in line with the lower Bank Indonesia benchmark rate, the bond remains attractive because it offers a higher yield compared to bank deposit rates,” he told the Post, adding that retail SBNs had gained traction this year.

He said that Indonesian banks turned to bonds as demand for credit fell because of the health crisis, adding that the trend, along with the burden sharing scheme between the government and the central bank, had brought down the 10-year government bond yield close to pre-crisis levels.

The 10-year government bond yield stood to 6.86 percent on Thursday, falling from 8.33 percent in March, when the capital market crashed due to coronavirus fears. Bond prices and yields move in opposite directions.

“Although foreign investment in government bonds has started to gain ground lately, it is still subdued because of risks stemming from the coronavirus pandemic and a new bill on Bank Indonesia,” he added, referring to a recent draft law that could curtail central bank independence.

Emerging debt markets have enjoyed healthy inflows in recent weeks and investment-grade debt has outperformed developing hard-currency debt more broadly, Reuters reported.

A study by the Bank of America showed that emerging debt funds attracted $1.6 billion in portfolio flows in the week to Oct. 28 in a fourth week of inflows.