Sey­chelles sells world’s first blue bond in ‘dol­phin debt’ deal

Sale by tiny is­land na­tion is first with ex­pressed pur­pose of pro­tect­ing ma­rine life

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY KATE ALLEN, FT CAP­I­TAL MAR­KETS & SOV­ER­EIGN DEBT COR­RE­SPON­DENT

The tiny is­land na­tion of Sey­chelles has be­come the first coun­try to raise funds in the bond mar­kets to pro­tect dol­phins and other ma­rine life, in a deal which also in­volves the World Bank and the Prince of Wales

The tiny is­land na­tion of Sey­chelles has be­come the first coun­try to raise funds in the bond mar­kets to pro­tect dol­phins and other ma­rine life, in a deal which also in­volves the World Bank and the Prince of Wales.

Sey­chelles is the first coun­try to sell debt that is ear­marked specif­i­cally for ocean projects, rais­ing $15m in a 10-year ‘blue bond’ which is mod­elled on the green- la­belled debt which first emerged a decade ago and has since grown into a $150bn-a-year mar­ket.

The coun­try re­ceived help in de­sign­ing the bond from the World Bank, which pi­o­neered the use of green bonds, and an en­vi­ron­men­tal foun­da­tion set up by the Prince of Wales to work on sus­tain­abil­ity chal­lenges.

Arunma Oteh, vice-pres­i­dent and trea­surer of the World Bank, said the blue bond was “an ex­am­ple of the pow­er­ful role of cap­i­tal mar­kets in con­nect­ing in­vestors to projects that sup­port bet­ter stew­ard­ship of the planet”.

Although the amount raised was small, it acted as a proof of con­cept for the blue bond struc­ture, she said: “We hope that this bond will pave the way for oth­ers — much like the World Bank’s first green bond catal­ysed the green bond mar­ket 10 years ago.”

A record $155bn of green-la­belled debt was sold in 2017, ac­cord­ing to credit rat­ing agency Moody’s, which fore­casts that be­tween $175bn and $200bn will be sold this year.

The bond “will greatly as­sist Sey­chelles in achiev­ing a tran­si­tion to sus­tain­able fish­eries and safe­guard­ing our oceans while we sus­tain­ably de­velop our blue econ­omy”, said Vin­cent Meri­ton, vice-pres­i­dent of the Repub­lic of Sey­chelles.

Sey­chelles is an ar­chi­pel­ago of

115 is­lands and 1.4m sq km of ocean. Fish prod­ucts com­prise 95 per cent of its ex­ports and the fish­ing in­dus­try em­ploys 17 per cent of its pop­u­la­tion. The bond pro­ceeds will be used to ex­pand its pro­tected ma­rine ar­eas, in­vest in fish­eries and of­fer grants and loans to ocean-re­lated in­dus­tries.

Justin Mundy, for­mer di­rec­tor of the Prince of Wales’ in­ter­na­tional sus­tain­abil­ity unit, said the bond’s con­cept was con­ceived in 2014 with the unit’s help.

“The bond demon­strates that in­sti­tu­tional in­vestors can be­come in­volved in help­ing to build a truly sus­tain­able blue econ­omy that sup­ports crit­i­cal ma­rine ecosys­tems,” he said.

Jen­nifer Pryce, chief ex­ec­u­tive of Calvert Im­pact Cap­i­tal, one of the three in­vestors who bought the bond, said there was an “ur­gent” need for cap­i­tal “to ad­dress threats to the health of our ocean”. The bond’s struc­ture is a way of to “align ma­rine con­ser­va­tion and eco­nomic op­por­tu­nity”, she said.

The other in­vestors who bought into the bond were Nu­veen — a sub­sidiary of as­set man­age­ment gi­ant TIAA — and Pru­den­tial Fi­nan­cial.

Stephen Lib­er­a­tore, man­ager of Nu­veen’s ESG fixed in­come strate­gies, said cli­mate change had “cre­ated both chal­lenges and pos­si­bil­i­ties for in­vestors”.

“In­vest­ing with a re­spon­si­ble ap­proach is both pru­dent and fi­nan­cially re­ward­ing in the long term,” he said. “We hope this trans­ac­tion serves as a tem­plate for cre­ative im­pact in­vest­ment so­lu­tions in the fu­ture.”

The fi­nanc­ing struc­ture blends com­mer­cial and non­com­mer­cial fund­ing sources — the bond is backed by a $5m guar­an­tee from the World Bank, and a $5m con­ces­sion­ary loan from the Global En­vi­ron­ment Fa­cil­ity, an in­ter­na­tional fi­nanc­ing part­ner­ship backed by gov­ern­ments and other or­gan­i­sa­tions, will partly cover the in­ter­est pay­ments.

The bond pays a 6.5 per cent an­nual coupon to in­vestors, but the GEF loan will re­duce the cost to Sey­chelles to 2.8 per cent.

It is Sey­chelles’ sec­ond foray into en­vi­ron­men­tal fi­nance: ear­lier this year the coun­try cre­ated two new ma­rine pro­tected ar­eas as part of a 2016 deal to write off $20m of its debt.

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