ESG Deal, Indonesia Capital Markets Deal: Star Energy Geothermal’s US$1.1bn amortising green bond

IFR Asia Awards 2020
3 min read
Jihye Hwang

Star performer

Indonesia’s Star Energy Geothermal (Salak-Darajat) pushed the boundaries with a sought-after green bond in early October that revived Asia’s brownfield project bond market and positioned the Asian infrastructure sector to benefit from surging global demand for green assets.

A US$790m 18-year non-call nine bond, which starts amortising from year nine and has a weighted average life of 14.1 years, was subscribed over 3.5 times after it was marketed to global investors. A US$320m 8.5-year non-call 3.5 bond was pre-placed with anchor demand at a yield of 3.25%. The 8.5-year note starts amortising from year one and has a WAL of 5.3 years.

The deal offered foreign investors a rare opportunity to take long-term exposure to a high-grade borrower from Indonesia’s private sector. With interest rates so low, the long-term refinancing also allowed sponsor Star Energy to put more money into developing new geothermal projects that will contribute to Indonesia’s energy transition.

Careful structuring helped the bonds obtain investment-grade ratings of Baa3/BBB– from Moody’s and Fitch and helped gain strong demand from global asset managers and dedicated ESG funds. This was an important achievement for Star Energy and resulted in a much better investor response than its previous, inaugural, green bond in April 2018. That US$580m amortising bond was rated Ba3/BB– (Moody’s/Fitch), and failed to meet its initial target size of US$650m or tighten pricing from initial guidance.

The new two-tranche 144A/Reg S offering amortises in order to remove the refinancing risk of a bullet maturity, while the guarantors of the notes are expected to maintain a robust debt service coverage ratio throughout the life of the bonds.

Star Energy was also the first investment-grade geothermal energy producer globally to tap the international bond market since 2005, pricing the largest corporate green bond out of South-East Asia as well as the first brownfield project bond of the year in Asia.

The 18-year note drew orders of more than US$2.8bn from 106 accounts, despite the Golden Week holiday lull in Hong Kong and China. The bond was also well-distributed across regions with US investors taking 42%, EMEA 19% and Asia 39%. Asset managers bought 82%, insurers and pension funds 8%, hedge funds 8% and private banks 2%.

The note priced at par to yield 4.85% after tightening by 27.5bp from initial guidance. It opened higher in secondary on the first trading day as under-allocated investors sought to top up their accounts.

Subsidiaries Star Energy Geothermal Darajat II and Star Energy Geothermal Salak were the co-issuers of the dual-tranche deal, which refinanced existing debt. Star Energy was the parent guarantor.

Credit Suisse, DBS and Deutsche Bank were joint global coordinators and joint green structuring agents, and joint bookrunners with Barclays.

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