Sustainable finance: Green and social bonds among top deals in 2018

Amid challenging conditions, 2018 saw remarkable progress on the deal making front with sustainable finance rising to the fore

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In Indonesia, innovative models of funding are helping to fight deforestation and improve the working conditions of farmers and rural communities.

Sustainable agriculture, forest conservation and renewable energy projects are the focus of a unique lending platform by Indonesia's Tropical Landscape Finance Facility (TLFF), this year's Triple A Asset Award winner under the newest category: Sustainable Finance.

TLFF provides long-term debt to individual sustainable projects. Put together, the loans are securitized and turned into a medium-term note programme, where bonds are sold to investors in a range of tranches, allowing small green projects access to investor pools that typically back large deals only. The projects under the programme meet certain criteria on sustainability.

PT Royal Lestari Utama is deal sponsor and BNP Paribas, sole arranger and lead manager of the US$95 million in senior secured notes for TLFF. The bonds' proceeds is financing a sustainable natural rubber plantation on heavily degraded land in two provinces in Indonesia. The project incorporates extensive social and environmental objectives and safeguards. Planted areas will serve as a buffer zone to protect a threatened national park from encroachment.

Indonesia is the world's second largest producer of natural rubber. Supported by an amortizing loan partially guaranteed by the US Agency for International Development (USAID), the deal represented the first sustainability project bond in Asia and the first project bond in a rubber plantation.

Sustainable finance has become a major theme for 2018 with issuers and borrowers embracing climate change mitigation and adaptation amid growing awareness around environmental, social and governance (ESG) risk.

In another first deal of its kind in Asia, the Korea Housing Finance Corporation (KHFC) successfully priced in October 2018 the first ever social covered bond offering in Asia and the first ever euro covered bond deal out of Korea and for the KHFC. The net proceeds from the deal will be used exclusively to purchase the company's mortgage loans that were directed to support low- to moderate income individuals. The proceeds also aim to stabilize and improve the structure of Korea's mortgage loan market in accordance with KHFC's social bond framework.

Meanwhile, New World China Land joined the green bandwagon as it printed its inaugural green bond transaction in November 2018, amounting to US$310 million. The company will use the proceeds to finance two certified environmental projects in the so-called Greater Bay Area.

Korea Water Resources Corporation priced in May the first ever water bond out of Asia amounting to US$300 million. The fund raising was designed to finance/refinance projects contributing to climate change adaptation, offer improved accessibility of sustainable water management systems, along with the development of renewable energy sources.

The first sustainability-linked club loan in Asia for Olam International, amounting to US$500 million, was cited as the Best Sustainability Loan. The facility links the interest rate on the loan to achieving clear sustainability targets, with Olam committed to meeting improvement targets for a comprehensive range of ESG metrics.

To see the full list of Best Sustainable Finance Regional Deals 2018 please click here.

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Date

14 Jan 2019

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