CASE STUDY

Helping an Indonesian non-bank financial institution
mobilize private capital for sustainable infrastructure
The World Bank provided technicalassistance to PT Indonesia Infrastructure
Finance to issue a USD 150 million, 5-yearsustainability bond to fund infrastructure
projects that are environmentally andsocially sustainable. This is the firstsustainability bond issued by a non-banking
financial institution in Indonesia.

Background

With its tropical rainforests and long coastline,
Indonesia is a key player in the fight against climatechange. In its updated Nationally Determined
Contributions 1 for the Paris Agreement, Indonesia hascommitted to a greenhouse gas emissions reduction
target of 29 percent unconditionally and 41 percent
with international support. Significant investments
are needed to close the infrastructure gap inIndonesia, presenting an opportunity to develop
infrastructure that generates fewer carbon emissions
and supports inclusive development.
PT Indonesia Infrastructure Finance (IIF) wasestablished in 2010 by the Government of theRepublic of Indonesia, along with the World Bank
Group, Asian Development Bank, and othermultilateral institutions, to finance commercially
viable infrastructure projects. An essential and criticalelement of Indonesia’s structural transformation isclosing its large infrastructure gap. IIF has a vital roleto play in this by supporting the flow of private capital
into infrastructure development and reallocating
resources from carbon-intensive to low-carbon andclimate-resilient infrastructure.
As a non-banking financial institution, IIF’s primary
funding source had so far been shareholder capital,
multilateral loans and financing through the domestic
market. However, both IIF and the local banking
sector had limited funding capacity. Therefore, IIF
decided to tap the international capital markets forlonger-term financing. Following the successful green
sukuk and green bond transactions by the1Updated Nationally Determined Contribution Republic of Indonesia 2021
(Available at:Balinese village with port, ferry ship and ocean. Photo Credit Adobe Stock by artifirsov

Government, PT SMI (another SOE) and two private
sector issuers in the infrastructure sector – TropicalLandscapes Finance Facility and Star Energy
Geothermal, IIF considered issuing a sustainability
bond that would allow it to expand its investor baseby drawing on the progress made towards
implementing its
Social and Environmental
Management System and raising awareness of its
interest in supporting sustainable investments. There
were several challenges. Firstly, there was aknowledge gap as only one other domestic institution
had issued a sustainability bond before. Secondly, thepandemic-induced market volatility presented
considerable challenges in coordinating the resources
to execute a transaction.

Financial Solution

A sustainability bond is a fixed income instrument
where the proceeds may be used to finance a
combination of “green” and “social” projects. Labeledsustainability bonds are expected to conform to theInternational Capital Market Association Green BondPrinciples, Social Bond Principles, and Sustainability
Bond Guidelines and attract investors who areinterested in sustainable investments.
Project evaluation and selection
In its Sustainable Financing Framework (SFF), IIF
defined 11 categories of projects that would beeligible for financing through the proceeds of thebond and future instruments, including - renewable
https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Indonesia%20F
irst/Updated%20NDC%20Indonesia%202021%20-%20corrected%20version.pdf)

CASE STUDYenergy, energy efficiency, pollution prevention andcontrol, clean transportation, sustainable water, andwastewater management, climate change adaptation,
green buildings, affordable basic infrastructure,access to essential services, affordable housing, andfood security and sustainable food systems. The SFF
also identified 25 activities that would not be eligible
for financing. In addition, it specified that debt
instruments issued under the SFF would exclude any
asset, technology, or activity associated with fossil
fuels. IIF established a governance system for theevaluation and selection of eligible projects. Projects
are meant to undergo scrutiny by the IIF’s
Environmental and Social Unit, Finance Units,Investment, Risk Units, and Legal Units. Shortlisted
projects are then presented to the Sustainable
Finance Working Group comprising senior managers
from the company for final selection.
Management of proceeds
Under the Sustainable Financing Framework, IIF’s
Treasury and Finance units were given theresponsibility to manage the proceeds raised underthe Framework. IIF specified that they would fully
allocate proceeds within two years of the issuanceand follow a look-back period of two years.
Reporting
IIF committed to reporting on the allocation andimpact of proceeds through annual reports publishedon its website.

OutcomePT Indonesia Infrastructure Finance’s USD 150 million
sustainability bond was listed on the Singapore Stock
Exchange on 28 January 2021 and successfully
priced at a yield of 1.75 percent and a coupon of 1.5
percent., The bond was 2.6 times oversubscribed byinvestors, demonstrating investor confidence in thetransaction. It was the first sustainability bond issued
by a non-banking financial institution in Indonesia.
According to the IIF’s 2021 Sustainability Bond Impact

Report, 100% of the bond proceeds were allocatedtowards sanitation, green infrastructure, renewableenergy, healthcare, and telecommunication projects.
The transaction received the Sustainability Bond ofthe Year award for 2022 in the category of Financial
Institution from the trade publication Environmental
Finance.

World Bank Treasury's Role•

The World Bank Treasury’s Sustainable Financeand ESG Advisory Services provided technicalassistance to IIF as part of the Infrastructure
Financing Support - Capital Market and Risk
Products project 2 managed by the World Bank’s
Finance, Innovation, and Competitiveness Global
Practice in Indonesia.

•The World Bank developed the capacity of IIF’s
technical team, helped develop the bondframework and identified eligible projects
according to international best practices. The
engagement continued after the issuance of thebond, with the World Bank helping IIF prepare thepost issuance Allocation and Impact Report.
Summary of Financial Terms

Date of issuance

January 27, 2021

AmountUSD 150 million

Tenor

5 years

Use of proceeds

Green and social projects in sanitation,
green infrastructure, renewable energy,
healthcare, and telecommunication
projects

Coupon

1.50%Yield

1.75% tightening of 37.5 basis points
from initial price guidanceOversubscription

2.6x

Contact: Miguel Navarro-Martin, Manager, Financial Products & Client Solutions, The World Bank Treasury
 mnavarromartin@worldbank.org  +1 (202) 458 4722
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.

2

Under the Indonesia Infrastructure Finance Development umbrella program,funded by the Global Affairs Canada. The project is also part of the Joint CapitalMarket Development (J-CAP) program for Indonesia, whose separate
components are funded by the Swiss Secretariat for Economic Affairs (SECO).