Going Green
The successful raising of N10.7 billion from the debut Sovereign Green Bond is another commendable feat by Debt Management Office and a show of investors’ confidence, writes Goddy Egene
The federal government’s Economic Recovery and Growth Plan (ERGP) has been seen as capable of repositioning Nigeria to its deserved position as a leading force in Africa and world at large. However, like some other policies of government that were well crafted but failed due to lack of implementation, some analysts are apprehensive of two major threats to the ERGP.
The apprehensions are around funding and implementation. However, the financial managers of government resources have started to address the funding side of the programme. One of the sources identified to fund the programme is the tapping into the Green Bonds market.
Being a new area, the task of ensuring a successful outing rested on the Debt Management Office (DMO). But employing its expertise to work with other stakeholders, the DMO ensured that debut Green Bond, which was issued in December, was successfully completed.
Despite the fact that issue was made in a period where most investors should be closing their books for the year, the N10.69 billion bond was enthusiastically received. This successful outing, according to stakeholders, attest to the high confidence in investors have in the management of DMO led by the director general, Patience Oniha and the Nigerian economy.
Federal Government Explains
Before the issuance of the bond, the federal government had to explain the specifically what the proceeds would be used for. This was important given the fact there have been cases of funds diversion in the past. And at the Green Bond Conference organised in Lagos by Federal Ministry of the Environment, Federal Ministry of Finance and DMO, Vice President, Prof. Yemi Osinbajo said the bond would support the federal government’s shift to non-oil base assets for project financing for economic growth and development.
According to him, the proceeds of the bond would be used for environmental projects such as renewable energy micro-utilities in three communities estimated at N10 billion and would provide an average of 33KW of power through solar technology.
He noted that the environment finance was very important for environmental projects, noting that the Green Bond would address climate change and environmental projects to ensure sustainable development.
Osinbajo, who described the initiative as a new addition to the market funding portfolio, added that the proceeds would be used by Nigeria to fight climate change.
He said that climate change had led to increase in natural disasters thereby affecting food, water and energy supply, thereby increasing poverty level of populace.
Also speaking at the conference, the then Minister of Environment, Mrs. Amina Mohammed, said government’s identifies the Green Bonds as one of the alternative sources of financing.
“Government is ready and committed to diversifying the economy, creating Jobs, improving security and improving quality of life. Green Bonds provides a new product with new credentials that investors can buy into which has gone through a vigorous process to ensure transparency, accountable use of funds and is environmentally friendly,” she said.
The minister called on the domestic capital markets to rally round the issuances.
“Our domestic market need to rally around our own domestic issuances. The recently issued Euro Bonds are a testament to us that the Nigerian Market is still viable. So, let’s translate that to domestic issuances. Greening our economy and financial systems will in the long run support our sustainability efforts and improve the economy as it will open new avenues for new types of jobs, innovation and skill,” she added. Stakeholders Optimistic Right from the beginning, most stakeholders were optimistic that the bid by the federal government to raise funds through Green Bonds issuance would be successful given the high demand for the instrument by investors globally, the management of DMO and confidence in the current administration.
For instance, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema said oversubscription in Green Bond issuance is commonplace, meaning that the planned issuance by Nigeria will record significant patronage.
According to him, assets under management by signatories to United Nations-supported Principles for Responsible Investment (Green Investment) rose from $4 trillion in 2006 to $60 trillion in 2015.
Besides, he said assets managed by institutional investors in the Organisation for the Economic Cooperation and Development (OECD) countries are projected to hit $120 trillion in 2019.
This, Onyema explained, are signals of a vibrant green bonds market that Nigeria will benefit from. Another first for DMO Succeeding with the debt Green Bond has been described as another first recorded by DMO. According to DMO, the Green Bond was very well received by a wide range of investors. The agency said that at the close of the offer, the total subscription received was N10.791 billion compared to the N10.69 billion offered.
“Among the investors who subscribed to the Green Bond were banks, pension funds, asset managers and retail investors,” the debt agency said.
The DMO had offered N10.69 billion Sovereign Green Bond for a tenor of five years and coupon of 13.48 per cent per annum.
“The DMO is pleased with the strong interest shown by investors. It shows investors’ interest in new products and support for the objective behind the issuance of b ond which is to invest in projects that will contribute to preserving the environment. It also shows support for the Paris Agreement on the Climate, which Nigeria has endorsed,” it said.
The green bond which was rated ‘Excellent’ by Moody’s, was issued as part of the federal government’s new domestic borrowing in the 2017 Appropriation Act to finance three Projects.
The projects are: Energising Education Programme, Renewable Energy Micro Utilities and Afforestation Programme.
The DMO expressed its commitment to providing products that meet the needs of investors for their portfolio preferences and to continue to promote financial inclusion.
Having succeeded with the debut issue, the market has not been established for subsequent issuances.
Oniha had disclosed that the government was working through the Federal Ministry of Environment and other stakeholders to introduce Green Bond to support the private sector who may also want to issue the product to support financial inclusion.
She said that DMO was not only to borrow but also supports the development of the market. She said that the bond issuance benefits were huge which ranges from poverty alleviation, job creations, economic benefits and environmental benefits.
According to her, the Green Bond could be issued by corporates and not only government, noting that capital market regulators were open to new products and would be eager to issue separate guidelines that would allow corporates to issue green bond.
The DMO boss further allayed fears of possible defaults as the projects are not meant to service the debts, rather the federal government will retire the debts from the budget appropriation.
She said: “This Green Bond is risk free and is like any other bonds issued by the federal government. It is captured in the federal government budget and will be retired by the government. So, the projects to be financed from the proceeds of the bond are not expected to generate revenue but are expected to have multiple effects to the people and economy.”
She explained that the outlook looks brighter for Nigeria as the country has come out recession and external reserve is also on the increase, which, she said would help boost the stability of our currency with increase in foreign investor confidence.
Oniha emphasized that the DMO strategy is to continuously restructure the federal government’s debt portfolio to replace short tenured bonds with long tenor and high rates with lower rates.
Before the issuance of the Green Bond, the DMO had succeeded in issuing the first $300 million Diaspora Bond and first Eurobond that has 30 years tenure.