The concept of a ‘Blue bond’ is catching on after the small island state of the Seychelles priced the first deal of its kind in October.
Aimed at protecting oceans, the US$15m bond, developed with the assistance of the World Bank, was placed to three investors: Calvert Impact Capital, TIAA’s Nuveen and Prudential Financial.
Though small, the deal points to growing awareness of ocean health – a key issue for island nations that rely heavily on fishing or tourism, such as Fiji, the host of the ADB’s 2019 annual meetings.
The Seychelles bond has a US$5m guarantee from the World Bank, and is also supported by a US$5m concessional loan from the Global Environment Facility which will partially cover interest payments.
The bond has a 10-year maturity and coupon of 6.5%, which the World Bank said was effectively reduced to 2.8% with the GEF support.
Proceeds will contribute to the World Bank’s South West Indian Ocean Fisheries Governance and Shared Growth programme, which helps countries in the region to manage their marine resources sustainably.
“Despite the relatively small issue size it was very heartening to see the strong market reception to the deal, which bodes well for further issuances in this space,” said Hussain Zaidi, head of bond syndicate for Europe, the Middle East and Africa at Standard Chartered, the placement agent.
The Seychelles’ debut has already spawned one copy: in January the Nordic Investment Bank priced a SKr2bn (US$216m) Blue bond to fund water projects around the Baltic Sea, described by the World Wildlife Fund as one of the most threatened marine ecosystems on the planet.
Because of industrial wastewater and agricultural run-off, the Baltic Sea contains five times more nitrogen and eight times more phosphorus than it did 100 years ago, according to the WWF, leading to serious eutrophication – an excess of minerals and nutrients that encourages algae and plant growth, choking marine life.
Christopher Flensborg, a sustainable finance specialist at bookrunner SEB, said the deal allowed investors “to get a better understanding of the challenges of the Baltic Seas ecosystems and the solutions to address these challenges”.
The 0.375% five-year bond was twice oversubscribed and priced at mid-swaps minus 2bp. Triple A rated NIB, which already has an active Green bond programme, said the investments would focus on water treatment, pollution prevention and climate change adaptation.
The Seychelles will use the proceeds to expand marine protected areas and improve governance as it promotes sustainability in its dominant industry. Fish products make up 95% of the country’s exports by value, and the fisheries sector employs 17% of the population, according to the World Bank.
The government of the Seychelles will place US$12m in an investment fund managed by Development Bank of the Seychelles and US$3m in a grants fund managed by the Seychelles Conservation and Climate Adaptation Trust.
Arunma Oteh, World Bank treasurer, said the deal illustrated the growing demand for sustainable products in the world’s capital markets.
“The blue bond is yet another example of the powerful role of capital markets in connecting investors to projects that support better stewardship of the planet,” she said.