Insights into the Green Bonds Market Growth
The green bonds market has witnessed significant growth in recent years, with issuances increasing from USD 1.8 billion in 2012 to USD 113 billion in 2017. This expansion is driven by a diverse range of issuers and rising demand for ESG investing. The breakdown by currency, issuer type, and geography provides a comprehensive overview of this evolving market. Additionally, the structuring and mechanism of Green Sukuk are outlined, emphasizing the importance of certification and verification for fund allocation and environmental impacts. Explore the latest trends and developments in sustainable investments through green bonds.
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26 April 2018 Together Rafe Haneef CEO CIMB Islamic Strictly Private & Confidential Strictly Private & Confidential
The Green Bonds Market The Green Bonds market has grown multiple folds over the past 5 years: Issuances totalled USD113.0 billion in 2017 compared to only USD1.8 billion in 2012. Initially, issuances were mainly from SSAs^ but in a short span of a few years, the market has seen a greater diversity of green bond issuers. Whilst issuers are steadily adding to the supply of green bonds, the growth in environmental, social and governance ( ESG ) investing is also, in tandem, driving demand for this asset class. According to Global Sustainable Investment Review s 2016 report, the field of ESG investing is estimated to encompass 26% of assets under management globally almost USD23 trillion. ^SSA Sovereign, Supranational and Government Agencies 2 Strictly Private & Confidential
The Green Bonds Market Green Bonds Market Issuance Breakdown by Currency 2012 USD2b 2017 USD113b 4%2%6% 3% 6% 9% 35% 18% 44% 14% 27% 33% TRY SEK USD AUD EUR Others Euro EUR USD RMB SEK AUD Others 3 *Source: Bloomberg as at 2 January 2018 Strictly Private & Confidential
The Green Bonds Market Green Bonds Market Issuance Breakdown by Issuer Type USD billion SSA Financials Utilities Industrials Consumer Others 113 120 Total Issue Size 7 4 100 9 78 23 80 4 2 3 13 60 36 32 35 40 10 36 2 2 4 1 1 5 7 9 20 4 36 2 20 18 17 1 2 7 - 2012 2013 2014 2015 2016 2017 4 *Source: Bloomberg as at 2 January 2018 Strictly Private & Confidential
The Green Bonds Market Green Bonds Market Issuance Breakdown by Geography USD billion Supranational France China Germany USA Others 120 113 Total Issue Size 100 46 78 80 22 6 60 9 5 5 36 32 40 26 31 13 10 9 2 5 20 2 4 16 7 6 5 1 1 4 1 2 2 10 10 10 7 6 - 2012 2013 2014 2015 2016 2017 5 *Source: Bloomberg as at 2 January 2018 Strictly Private & Confidential
Structuring and Mechanism of Green Sukuk Second Party Opinion*: - Independent review of Green Framework - verification of alignment with Green Bond Principles Second Party Opinion: - Verification of fund allocation - Environmental impacts of projects ISSUANCE Issuer Green Framework *: - Issuer develops Green Framework Certification: - In accordance with third-party certification standards * Highly recommended to ensure the widest green investor reach 6 Strictly Private & Confidential
Developing the Green Bond/Green Sukuk Framework The Republic of Indonesia s Green Bond and Green Sukuk Framework provides a robust structure for climate-aligned investment. The framework is aligned with ICMA s Green Bond Principles ( GBP ) and the ASEAN Green Bond Standards ( GBS ). The GBP are voluntary process guidelines for the issuance of Green Bonds/Sukuk that aim to promote integrity in the green capital markets through transparency in disclosure and reporting. While the GBP have provided broad principles on Green Bonds, the GBS aim to provide more specific guidance on how the GBP are to be applied across ASEAN. 1. Use of Proceeds Utilisation of the proceeds should be appropriately described in the legal documentation. All designated green projects should provide clear environmental benefits, which will be assessed and quantified by the issuer. Proceeds may be used for new financing or refinancing green projects 2. Process for Project Evaluation and Selection Issuers should clearly communicate to investors: Environmental sustainability objectives Process to determine the eligible projects Related eligibility criteria 3. Management of Proceeds The net proceeds should be credited to a sub- account, moved to a sub-portfolio or otherwise tracked by the issuer in an appropriate manner, and attested to by the issuer in a formal internal process 4. Reporting Issuers should make readily available, up to date information on use of proceeds to be renewed annually until full allocation, and as necessary thereafter in the event of material developments. The report should include a list of the projects to which proceeds have been allocated, and brief description of projects, amounts allocated and expected impact. ACMF is a forum which comprises capital market regulators from ASEAN countries whose primary task is to promote greater integration and connectivity of regional capital markets ICMA, which is a self-regulated organisation and association of participants in the capital markets, acts as the Secretary to the GBP 7 Strictly Private & Confidential
Developing the Green Bond/Green Sukuk Framework Key additional features of the Green Bond Standards: Eligible Issuers: The Issuer or issuance of the green bond must have a geographical or economic connection to ASEAN. Ineligible Projects: Fossil fuel power generation projects are excluded from the GBS. Continuous Accessibility to Information: Information in relation to the 4 core principles are required to be disclosed on publicly accessible website designated by the Issuer throughout the tenor of the ASEAN Green Bonds/Sukuk. Encourage More Frequent Reporting: In addition to annual reporting, Issuers are encouraged to provide more frequent periodic reporting. External Review: In line with GBP, the appointment of an external review is voluntary under the GBS. Nonetheless, the GBS require the external reviewer to have the relevant expertise and experience in the area which they are reviewing. External reviewers credentials and scope of review conducted must be made publicly accessible from a website designated by the Issuer throughout the tenor of the ASEAN Green Bonds/Sukuk. 8 Strictly Private & Confidential
Case Study The Republic of Indonesia s Green Bond and Green Sukuk Framework The Republic of Indonesia has developed a Green Bond and Green Sukuk Framework under which it plans to finance or refinance eligible projects via the issuance of Green Bonds and Green Sukuk The proceeds of each Green Bond or Green Sukuk will be used exclusively for spending in the form of budget allocation / subsidies / projects for new financing or the refinancing of eligible Green projects Use of Proceeds National Development Planning Agency and the Ministry of Finance, will review and approve projects / budget allocation / subsidies to be included within the State Budget Process for Project Evaluation and Selection The Ministry of Finance shall manage the allocation process within the Government s general account in accordance with sound and prudent treasury management policy Management of Proceeds The Ministry of Finance will prepare and publish a report annually and initially on the date falling no more than one year after the inaugural Green Bond or Green Sukuk issuance Reporting Source: ICMA Paris, the Green Bond Principles 2017 10 Strictly Private & Confidential
Worlds Debut Sovereign Green Sukuk Issuance CIMB Played a Key Role Republic of Indonesia USD1.25 billion Green Trust Certificates due 2023 and USD1.75 billion Trust Certificates due 2028 Deal Summary Perusahaan Penerbit SBSN Indonesia III ( PPSI-III ) Dealer, Lead Manager, Bookrunner Baa3 by Moody s, BBB- by S&P and BBB by Fitch USD25.0 billion Trust Certificate Issuance Program ( Program ) USD3.0 billion Wakala Sukuk: Tranche 1: USD1,250 million (Green) Tranche 2: USD1,750 million Issuer CIMB s Role Rating Facility Issue Size Tenor Tranche 1: 5 years (Green) Tranche 2: 10 years Tranche 1: 3.75% p.a. Tranche 2: 4.40% p.a. 1 March 2018 Wakala Profit Rate Issue Date Islamic Structure 11 Strictly Private & Confidential
Worlds Debut Sovereign Green Sukuk Issuance CIMB Played a Key Role Republic of Indonesia USD1.25 billion Green Trust Certificates due 2023 and USD1.75 billion Trust Certificates due 2028 Transaction Highlights CIMB acted as a Active Joint Bookrunner, Active Joint Lead Manager and Dealer for the RoI s issuance of Trust Certificates ( Wakala Sukuk ) from its recently upsized Program ofUSD25.0 billion. The Sukuk issuance, comprising a 5-year Green tranche and a 10-year tranche, is the 9th USD Sukuk issuance by the RoI. The transaction is in line with the Republic's ongoing objectives to strengthen the global Islamic financial market and commit to environmentally sustainable green funding. The Sukuk are structured based on the Shariah principle of Wakala. The Sukuk assets under this Wakala Sukuk issuance consist of (i) state-owned assets including land and buildings (51%) and (ii) project assets which are under construction or to be constructed (49%). The 5-year tranche represents the world's debut sovereign Green Sukuk issuance and the first ever issuance under the RoI s newly established Green Bond and Green Sukuk Framework. Following a series of investor meetings covering key financial centers in Asia, Europe and the Middle East and taking advantage of an opportunistic window following a period of heightened volatility in the global capital markets, the deal was announced on 22 February at 11.00am Asia time with an initial price guidance of 4.05% area and 4.70% area for the 5-year and 10-year tranche, respectively. The transaction was completed within the day in view of tremendous support and demand from the global investor community. The transaction was supported by a quality global orderbook, including the introduction of green investors who reinforced the robust demand for the Sukuk allowing RoI to price significantly tighter from initial price guidance. 12 Strictly Private & Confidential
Republic of Indonesia USD3.0 billion Trust Certificates due 2023 and 2028 Transaction Highlights CIMB acted as a Active Joint Bookrunner, Active Joint Lead Manager and Dealer for the RoI s issuance of Trust Certificates ( Wakala Sukuk ) from its recently upsized USD25.0 billion Trust Certificate Issuance Program ( Program ). Offering Summary Issuer Perusahaan Penerbit SBSN Indonesia III ( PPSI-III ) The Republic of Indonesia ( RoI ) Obligor Obligor Ratings Baa3/Positive outlook by Moody s, BBB-/Stable outlook by S&P and BBB/Stable outlook by Fitch Issue Ratings Baa3 by Moody s, BBB- by S&P and BBB by Fitch Islamic Structure Sukuk Assets State-owned assets including land and buildings, and project assets Issue Size USD3.0 billion Wakala Sukuk: Tranche USD1,250 million Tranche 2: USD1,750 million Issue Date 1 March 2018 Maturity Tranche 1 (Green tranche): 5 years Tranche 2: 10 years Spread to US Treasury ( UST ) Tranche 2: UST+1.477% UST Benchmark 2.655% Tranche 2: 2.923% Yield and Periodic Distribution Rate Mode of Issue Bookbuilding Clearing System Luxembourg Listings Singapore Trading Limited and Nasdaq Dubai Format Rule 144A/Regulation S Governing Law English Law/Indonesia Law for asset-related documents The Sukuk issuance, comprising a 5-year Green tranche and a 10-year tranche, is the 9th USD Sukuk issuance by the RoI and the 7th issuance by PPSI-III under the Program. The transaction is in line with the Republic's ongoing objectives to strengthen the global Islamic financial market and commit to environmentally sustainable green funding. Wakala Active Joint Bookrunner The Sukuk are structured based on the Shariah principle of Wakala. The Sukuk assets under this Wakala Sukuk issuance consist of (i) state-owned assets including land and buildings (51%) and (ii) project assets which are under construction or to be constructed (49%). Active Joint Lead Manager 1 (Green tranche): Dealer The 5-year tranche represents the world's debut sovereign Green Sukuk issuance and the first ever issuance under the RoI s newly established Green Bond and Green Sukuk Framework. March 2018 Tranche UST+1.095% 1 (Green tranche): Following a series of investor meetings covering key financial centers in Asia, Europe and the Middle East and taking advantage of an opportunistic window following a period of heightened volatility in the global capital markets, the deal was announced on 22 February at 11.00am Asia time with an initial price guidance of 4.05% area and 4.70% area for the 5-year and 10-year tranche, respectively. The transaction was completed within the day in view of tremendous support and demand from the global investor community. Distribution by Geography (5Y Green tranche) Distribution by Investor Type (5Y Green tranche) Islamic 40% Banks 32% Tranche 1 (Green tranche): 29% FM Asia 25% 20% Central Banks/SWF United States 18% 10% Ins/Pension Tranche 1 (Green tranche): 3.75% p.a. Tranche 2: 4.40% p.a. Europe 15% 1% PB Indonesia 10% The transaction was supported by a quality global orderbook, reinforcing the robustness and the depth of the Sukuk market and demonstrating strong investor appetite for the issuance. The RoI was able to tighten and successfully price at 30bps tighter than initial pricing guidance for both tranches. Distribution by Geography (10Y) Distribution by Investor Type (10Y) DTC/Euroclear/Clearstream, Europe 32% FM 47% Islamic 24% Banks 39% Exchange Securities United States 22% 7% Central Banks/SWF Asia 12% 6% Ins/Pension Indonesia 10% 1% PB 13 Strictly Private & Confidential Strictly Private & Confidential
Worlds Largest Green SRI Sukuk Issuance CIMB Played a Leading Role Quantum Solar Park (Semenanjung) Sdn Bhd RM1.0 billion Green Sustainable and Responsible Investment Sukuk Deal Summary Issuer CIMB s Role Rating Facility Quantum Solar Park (Semenanjung) Sdn Bhd ( QSP Semenanjung ) Sole Principal Adviser, Lead Arranger, Lead Manager and Financial Advisor AA- by Malaysian Rating Corporation Berhad ( MARC ) Islamic medium term notes issuance of up to RM1.0 billion in nominal value ( Green SRI Sukuk ) Issue Size Tenor RM1.0 billion (USD236.5 million) Sukuk Murabahah 1.5 years 17.5 years 4.81% p.a. - 6.16% p.a. 6 October 2017 Murabahah (via a Tawarruq arrangement) Profit Rate Issue Date Islamic Structure 15 Strictly Private & Confidential
Worlds Largest Green SRI Sukuk Issuance CIMB Played a Leading Role Quantum Solar Park (Semenanjung) Sdn Bhd RM1.0 billion Green Sustainable and Responsible Investment Sukuk Transaction Highlights CIMB acted as the Sole Principal Adviser, Lead Arranger and Lead Manager of the Green SRI Sukuk. CIMB also acted as the Financial Advisor to the Issuer. The Green SRI Sukuk is the world s largest Green Sustainable and Responsible Investment Sukuk issuance to-date. QSP Semenanjung is a special purpose vehicle established to undertake three (3) solar photovoltaic plants of 50MWac each in Gurun (Kedah), Merchang (Terengganu) and Jasin (Melaka) ( Projects ) on a Build-Own-Operate scheme through 3 project companies namely QSP Kedah, QSP Melaka and QSP Terengganu (collectively the Project Companies and each a ProjectCompany ). With a combined capacity of 150MWac, QSP Semenanjung will be the largest solar power producer in Malaysia. The Projects are expected to be instrumental in helping Malaysia reach its ambition of 1 GWac from large scale solar plants by 2020 and contribute towards sustainable electricity supply and the reduction of carbon emission in Malaysia in line with the National Renewable Energy Policy and National Green Technology Policy of Malaysia. The Green SRI Sukuk proceeds will be utilised to pay/advance to the Project Companies to partially fund the respective Project Company s project development cost. QSP Semenanjung Green Bond Framework has received a Dark Green shading from the Center for International Climate Research (CICERO). The Dark Green shading is for projects and solutions which entail zero emission solutions and governance structures that integrate environmental concerns into all activities. 16 Strictly Private & Confidential
Quantum Solar Park (Semenanjung) Sdn Bhd RM1.0 billion Green SRI Sukuk Transaction Highlights Offering Summary Issuer Quantum Solar Park (Semenanjung) Sdn Bhd ( QSP Semenanjung ) CIMB acted as the Sole Principal Adviser, Lead Arranger and Lead Manager of the Green SRI Sukuk. The Green SRI Sukuk is the largest to-date issued for a large scale solar ( LSS ) power project. QSP Semenanjung is a special purpose vehicle established to undertake photovoltaic ( PV ) plants of 50MWac each in Gurun (Kedah), Merchang (Terengganu) and Jasin ( Projects) on a Build-Own-Operate scheme through 3 project companies namely QSP Kedah, QSP Melaka and QSP Terengganu ( Project Companies ). With a combined capacity of 150MWac, QSP Semenanjung will be the largest solar power producer in Malaysia. The Projects are expected to be instrumental in helping Malaysia reach its ambition of 1 GWac from LSS by 2020 and contribute towards sustainable electricity supply and the reduction of carbon emission in Malaysia in line with the National Renewable Energy Policy and National Green Technology Policy of Malaysia. The Green SRI Sukuk proceeds will be utilised to pay/advance to each Project Company to partially fund the respective Project Company s project development cost. QSP Semenanjung Green Bond Framework has received a Dark Green shading from the Center for International Climate Research (CICERO). The Dark Green shading is for projects and solutions that are realisation today of the long-term vision of low carbon and climate resilient future which entail zero emission solutions and governance structures that integrate environmental concerns into all activities . Quantum Solar Park (Semenanjung) Sdn Bhd Facility Islamic medium term notes issuance of up to RM1.0 billion in nominal value ( Green SRI Sukuk ) three (3) solar Islamic Principle Murabahah (via a Tawarruq arrangement) Issue Size RM1.0 billion Sole Principal Adviser, Lead Arranger, Lead Manager Issuance Tenure 1.5 years 17.5 years Rating AA- by Malaysian Rating Corporation Berhad ( MARC ) CIMB Periodic Distribution Semi-annual October 2017 Profit Rate 4.81% - 6.16% p.a Issue Date 6 October 2017 17 Strictly Private & Confidential
Disclaimer This presentation has been prepared by CIMB Investment Bank Berhad ( CIMB ) exclusively for the benefit and internal use of the recipient in order to indicate, on a preliminary basis, the feasibility of possible transactions. Terms contained in this presentation are intended for discussion purposes only and are subject to a definitive agreement. All information contained in this presentation belongs to CIMB and its related corporations ( CIMB Group ) and may not be copied, distributed or otherwise disseminated in whole or in part without the written consent of CIMB Group. This presentation has been prepared on the basis of information that is believed to be correct at the time the presentation was prepared, but that may not have been independently verified. CIMB Group makes no express or implied warranty as to the accuracy or completeness of any such information. None of the member of the CIMB Group and its affiliates (including its joint venture companies and their respective related corporations) is acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessment of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers. Any member of the CIMB Group and its affiliates (including its joint venture companies and their respective related corporations) may act as a principal or agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities. None of the CIMB Group and its affiliates (including its joint venture companies and their respective related corporations) and their respective directors, employees and representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (express or implied) arising out of, contained in or derived from or any omission from the presentation, except liability under statute that cannot be excluded. 18 Strictly Private & Confidential
