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IFC
IFC, a member of the World Bank Group, issued a first-of-its-kind bond that gives investors the option of getting repaid in either carbon credits or cash, raising $152 million to support private sector development and prevent deforestation in developing countries.
Each year, 5.5 million hectares of tropical forest area—an area approximately the size of Costa Rica–are deforested. Protecting forests is critical to keeping global warming under 2 degrees Celsius while offering an important opportunity to boost rural livelihoods and protect vital ecosystems.
“Halting deforestation is essential to meet the global community’s climate goals,” Jingdong Hua, IFC Vice President and Treasurer. “To do that, we need to mobilize $75 billion to $300 billion in the next decade. Much of this needs to come from the private sector. IFC’s Forests Bond demonstrates the power of innovative capital-market mechanisms to unlock private sector funds for forest protection.”
The five-year bond was sold to major global institutional investors—including CalSTRS, Treehouse Investments LLC, TIAA-CREF, and QBE. Proceeds will support IFC’s private sector lending in emerging markets. The bond will be listed on the London Stock Exchange.
Investors were offered a choice between a cash or carbon-credit coupon. A carbon credit is a tradable certificate or permit representing the right to emit one ton of carbon dioxide or another greenhouse gas with an equivalent to one ton of carbon dioxide. Investors choosing the carbon credit coupon can retire the credits to offset corporate greenhouse gas emissions, or sell them on the carbon market.
To pay investors a carbon credit coupon, IFC will buy carbon credits from a project that follows the United Nations Reducing Emissions from Deforestation and Forest Degradation, or REDD, scheme. A REDD project offers economic incentives to reduce deforestation and invest in low-carbon growth. The project from which IFC will purchase carbon credits is the Kasigau Corridor REDD project in Kenya.
IFC developed the Forests Bond with BHP Billiton and Conservation International. BHP Billiton is a global mining, metals, and petroleum company. Conservation International is a global nonprofit environmental organization.
BHP Billiton provides a price-support mechanism for the Forests Bond. If investors elect the cash coupon instead of the carbon coupon, BHP Billiton offtakes the carbon credits generated and delivered by the Kasigau Corridor REDD project.
Fiona Wild, BHP Billiton Vice President Sustainability and Climate Change, said: “BHP Billiton is committed to operating sustainably and reducing our environmental footprint. IFC has been one of the pioneers in the green bond market as well as in climate financing. The innovative IFC Forests Bond provides us a new way to offer economic incentives to reduce deforestation and invest in low-carbon growth.”
Conservation International helped identify the project supported by the bond.
“CI helps build the global system that makes forests more valuable when they’re standing than when they’re cut,” said Agustin Silvani, Vice President of the organization’s Conservation Finance Division. “We are pleased to see the successful issuance of this innovative instrument and will continue to work with business and community leaders to develop more sustainable forest protection models.”
“It’s exciting and extremely encouraging to see the climate finance market continue to move forward with a steady stream of unique deals that offer attractive valuations for investors, while at the same time, delivering a positive environmental impact.” said Stephen M. Liberatore, managing director at TIAA Global Asset Management responsible for ESG fixed income strategies, including the TIAA-CREF Social Choice Bond Fund. “Prudently deploying capital on worthy projects that address global climate change by helping to reduce deforestation can have great potential benefits for both investors and society.”
“QBE is very pleased to have played a part in bringing this transaction to market. We are always interested in supporting issuers who share our desire to play a catalytic role in blending social or environmental responsibility with innovation, investment and funding programs. This type of asset will support our Premiums4Good initiative, channelling premiums received into assets that seek to deliver on a social or environmental objective in addition to meeting risk and return criteria”
Placement agents Bank of America Merrill Lynch, BNP Paribas and J.P. Morgan played an important role in fine-tuning the bond structure by road-testing the design with a broad set of potential investors.
“J.P. Morgan is proud to be part of IFC’s innovative new forestry bond, said Marilyn Ceci, Managing Director, Head of Green Bonds, J.P. Morgan.”We are pleased to bring together like-minded investors and issuers in this first-of-its-kind offering and provide new opportunities through which social and environmentally-conscious participants in the bond market can help mitigate climate change.”
Citi is the calculation, paying, transfer and settlement agent for the bond.
“Citi is highly committed to supporting solutions leading to sustainable growth and we are pleased to contribute to the launch of this innovative financial instrument,” Dirk Jones, Global Head of Issuer Services at Citi said. “We look forward to leveraging our global network and agency and trust expertise to facilitate the IFC’ mission to integrate environmental factors into capital allocation and portfolio management.”
To date, IFC has raised climate finance through a variety of innovative instruments including $5.6 billion in green bonds. Green bond proceeds are set aside and invested exclusively in climate-smart projects such as energy efficiency and renewable energy.
IFC is one of the world’s largest financiers of climate-smart projects in developing countries, with climate-smart investments totaling over $13 billion over the last decade. As part of its Climate Implementation Plan, IFC has committed to lead efforts in catalyzing $13 billion a year in private sector capital for climate investment by 2020.
IFC Forests bond terms and conditions
Issuer: International Finance Corp “IFC”
Issuer rating: Aaa / AAA (all Stable)
Size: USD 152 Million
Coupon: 1.546% annual USD fixed rate amount (default option) or VCU coupon equivalent VCU coupon calculation: Should a noteholder elect to receive delivery of eligible VCUs, the noteholder will receive a whole number of Eligible VCUs determined by rounding the accrued interest amount for such Noteholder’s Notes up to the nearest number divisible by 5, and dividing by US$5.00 (which is the fixed price per Eligible VCU)
Maturity: 4th November 2021 (5-year)
Settlement: 4th November 2016 (T+5)
Spread: $MS+ 18 bps
Price: 100.00
Listing: London
