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A. P. Sari et al.
in 2017 might be due to more diversified labeling in the forms of sustainability,
sustainable development goals (SDGs), and social bonds. Taking all of these labeled
bonds together, the market actually grew by 13% from US$199.3 billion in 2017
to US$226.1 billion in 2018 (e.g. CBI (Climate Bond Initiative) 2019). At EUR7
billion (US$7.5 billion) with 22 years tenor, France’s green bond was the largest to
date (e.g. CBI 2018b).
Green bonds have indeed already become a strategic instrument to raise funds
for green purposes. Among others, it could access a broader investor base and, in
general, it also has better pricing compared to regular bonds (e.g. CBI 2017). Bonds
are attractive for financing peatland restoration because it is inexpensive, and allows
for a long tenure.
Bonds are practically an investment in the form of a loan. One invests through
buying bonds expecting to get a return on their investments that is higher than the
amount they spend buying the bonds. One also expects the security of their investments as bonds are considered a relatively safe investment, although the level of
security depends on the rating of the bond issuers. The level of safety and security of
the bonds are usually depicted by some sort of rating system, either for governmentor corporate-issued bonds. Government-issued bonds are usually safe, or “investment
grade,” although not all of them.
The Architectural Structure of the Indonesian Peat Bond
A so-called “Peat Bond” works as depicted in Fig. 12.3, below. The bond instrument is guaranteed by the government (sovereign guaranteed) or even issued by the
government as a sovereign bond. The sovereign guarantee allows for increased safety
and security of the bond, which allows for a better price, longer tenor, and overall
marketability of the bonds. Indonesia’s credit rating is an investment grade with a
stable outlook. This means that Indonesia is a safe place for investment.
8 In which
case, Indonesia can sell its sovereign bonds at favorable price. The 2018 green sukuk,
for example, could be sold at favorably low price at 3.75% for the 5 years tenor and
4.4% for the long 10 years tenor (e.g. Mediatama 2019). There is no case yet for
longer tenor in Indonesian bonds, although it may be possible.
The proceeds from the sales of the bonds will be used to finance the project types
above. The first two, paludiculture projects and farms and plantations in mineral
lands surrounding the peatland restoration areas as well as other economic activities,
maybe more straightforward. These activities will yield incomes that can be used to
pay back the financing that eventually will be used to pay the investors (the bond
buyers) in coupons.
8 As of today, Indonesia’s sovereign (credit) rating hovers around BBB (Standard and Poor’s), BBB
(Fitch Ratings), Baa2 (Moody’s Investor Service), BBB (Japan Credit Rating Agency), and BBB
(Rating and Investment Information Inc.), all with stable outlook. This means that Indonesia is a
safe place to invest.
A. P. Sari et al.
in 2017 might be due to more diversified labeling in the forms of sustainability,
sustainable development goals (SDGs), and social bonds. Taking all of these labeled
bonds together, the market actually grew by 13% from US$199.3 billion in 2017
to US$226.1 billion in 2018 (e.g. CBI (Climate Bond Initiative) 2019). At EUR7
billion (US$7.5 billion) with 22 years tenor, France’s green bond was the largest to
date (e.g. CBI 2018b).
Green bonds have indeed already become a strategic instrument to raise funds
for green purposes. Among others, it could access a broader investor base and, in
general, it also has better pricing compared to regular bonds (e.g. CBI 2017). Bonds
are attractive for financing peatland restoration because it is inexpensive, and allows
for a long tenure.
Bonds are practically an investment in the form of a loan. One invests through
buying bonds expecting to get a return on their investments that is higher than the
amount they spend buying the bonds. One also expects the security of their investments as bonds are considered a relatively safe investment, although the level of
security depends on the rating of the bond issuers. The level of safety and security of
the bonds are usually depicted by some sort of rating system, either for governmentor corporate-issued bonds. Government-issued bonds are usually safe, or “investment
grade,” although not all of them.
The Architectural Structure of the Indonesian Peat Bond
A so-called “Peat Bond” works as depicted in Fig. 12.3, below. The bond instrument is guaranteed by the government (sovereign guaranteed) or even issued by the
government as a sovereign bond. The sovereign guarantee allows for increased safety
and security of the bond, which allows for a better price, longer tenor, and overall
marketability of the bonds. Indonesia’s credit rating is an investment grade with a
stable outlook. This means that Indonesia is a safe place for investment.
8 In which
case, Indonesia can sell its sovereign bonds at favorable price. The 2018 green sukuk,
for example, could be sold at favorably low price at 3.75% for the 5 years tenor and
4.4% for the long 10 years tenor (e.g. Mediatama 2019). There is no case yet for
longer tenor in Indonesian bonds, although it may be possible.
The proceeds from the sales of the bonds will be used to finance the project types
above. The first two, paludiculture projects and farms and plantations in mineral
lands surrounding the peatland restoration areas as well as other economic activities,
maybe more straightforward. These activities will yield incomes that can be used to
pay back the financing that eventually will be used to pay the investors (the bond
buyers) in coupons.
8 As of today, Indonesia’s sovereign (credit) rating hovers around BBB (Standard and Poor’s), BBB
(Fitch Ratings), Baa2 (Moody’s Investor Service), BBB (Japan Credit Rating Agency), and BBB
(Rating and Investment Information Inc.), all with stable outlook. This means that Indonesia is a
safe place to invest.