BSI offers higher indicative sukuk returns to fund sustainable financing

Term funding comes at a higher indicative price in BSI’s latest sukuk. Its 370-day tranche offers 7 per cent, against 6.65 per cent in its 2024 issue.

Bank Syariah Indonesia (BSI), the Indonesian bank, plans to raise 2 trillion Indonesian rupiah through sustainability mudharabah sukuk, with the public offering scheduled for 4–6 November. Proceeds after issuance costs will support new financing and refinancing of existing facilities in eligible environmental and social categories.

The attraction for BSI is access to funding over defined maturities; for investors it is the income available for accepting bank credit exposure. The commercial bargain depends on the return calculation and the assets financed. A sustainability label adds a use-of-proceeds discipline, while the financing margin still has to pay for the funding.

A narrow reward for longer maturities

Series A accounts for 900 billion rupiah, with a tenor of 370 calendar days and an indicative equivalent annual return of 7 per cent. Series B offers 230 billion rupiah over two years at 7.05 per cent, while Series C offers 870 billion rupiah over three years at 7.2 per cent.

That pricing gives buyers a modest additional return for extending their commitment. The middle tranche is especially demanding because its income advantage over the shortest tranche is slight, so investors need a reason to prefer its maturity. BSI, conversely, gains more time before repayment without a large increase in the advertised annual rate.

For the earlier issue, BSI announced annual returns of 6.65 per cent for Series A, 6.7 per cent for Series B and 6.8 per cent for Series C. Those tranches also ran for 370 calendar days, two years and three years respectively. The proposed rates are higher across the corresponding maturities.

For the bank, paying more can still be sensible if the maturity profile supports profitable financing and reduces pressure to replace funding. A deposit comparison needs to account for the value of that stability as well as the price. Issuance expenses also belong in the margin calculation, because the amount available to finance customers comes after those deductions.

Profit sharing needs its own valuation

The advertised rates are indicative equivalent returns. Informasi.com describes the payments as floating profit sharing, payable every three months. BSI’s terms also schedule the first profit-sharing payment for 11 February 2027, with principal repaid in full at each series’ maturity.

For investors, the contractual calculation is central to valuation. A quoted equivalent rate is a useful starting point, but the profit-sharing ratio and calculation base determine the income actually due. Any adjustment provisions would also affect the comparison with instruments whose payments follow a different mechanism.

A competitive return has to compensate for the issuer’s credit risk and the ease of selling before maturity. Sovereign sukuk provide a relevant alternative, but the useful comparison is with instruments of similar remaining maturity at their purchase prices. An original coupon alone is a poor guide to the income available from a secondary-market purchase.

The same discipline applies to comparable bank sukuk. A higher advertised rate can be consumed by weaker trading liquidity or less favourable contractual terms. For BSI, strong demand at final pricing would strengthen the funding proposition; investor allocations and the final return mechanism will determine how broadly that proposition appeals.

Refinancing changes the growth story

BSI has set environmental financing at 30–50 per cent of proceeds and social financing at 50–70 per cent. Eligible environmental activities include renewable energy, energy efficiency, sustainable water management, cleaner transport and green buildings. Social categories include affordable infrastructure, essential services, affordable housing, employment, food security and socioeconomic empowerment. If sukuk proceeds fall short of the financing requirements, BSI will cover the difference through its internal cash flow.

For developers and equipment suppliers, the split between new financing and refinancing is more commercially useful than the headline fundraising total. New facilities can finance additional customer spending. Refinancing supports existing borrowers and releases funding capacity, but its immediate effect on orders depends on what those customers subsequently undertake.

The programme also has an established financing portfolio behind it. BSI’s sustainable financing stood at 72.6 trillion rupiah in March 2025, including 14.6 trillion rupiah of green financing and 58 trillion rupiah of social financing. The new issue would add funding alongside that existing sustainable-financing portfolio.

The allocation gives borrowers in social categories a prominent place in the funding plan. Commercial value will come from financing that earns enough to cover investor distributions, operating expenses and credit losses. If proceeds flow mainly into refinancing, the bank’s benefit will centre on funding continuity; a larger new-financing share would put more weight on origination and borrower quality.

A top rating leaves liquidity exposure

The sukuk carries an idAAA(sy) rating from Indonesian rating agency Pefindo. BSI nevertheless states that it has no specific collateral and falls outside the deposit guarantee programme of Indonesia’s Deposit Insurance Corporation. Buyers therefore take credit exposure through a security with different protections from an insured deposit. The issue’s four lead underwriters are BNI Sekuritas, BRI Danareksa Sekuritas, Mandiri Sekuritas and Mega Capital Sekuritas. Their underwriting arrangement is on a full-commitment basis.

Liquidity is the other commercial constraint. Difficulty selling in the secondary market can make the maturity commitment more consequential than the advertised return suggests. For the bank, the corresponding risk is earning too little on the financed assets to justify the funding cost, particularly if credit losses absorb the margin.

BSI has already repaid a short-dated tranche from its previous issuance. It settled 2.445 trillion rupiah of principal on its second-stage Series A sukuk on 6 July, through Indonesia Central Securities Depository, in line with the scheduled maturity.