Gabon Joins Blue Bond Wave With $500 Million Debt Refinancing

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Gabon completed mainland Africa’s first-ever “debt-for-nature swap” Tuesday, refinancing $500 million of its debt and earmarking $163 million in savings for marine conservation, the latest in a burgeoning list of “blue bond” deals.
The central African nation, home to the world’s largest population of leatherback turtles, will spend the money over the next 15 years identifying new marine conservation sites, strengthening the management of existing ones and clamping down on overfishing. It will also fund an endowment that will continue to finance marine-conservation projects.
The deal is the latest in a growing list of marine-focused debt-for-nature swaps, also known as blue bonds, that seek to fund sea-life conservation efforts with novel debt refinancing arrangements.
While smaller than other such debt-for-nature swaps, Gabon’s is the first in mainland Africa—a continent conservationists see as ripe for such deals, replete with at-risk marine environments and often high sovereign debts—and it is hoped it will provide the impetus for more blue bonds deals across the continent.
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Debt-for-nature swaps see heavily indebted developing nations work with Western banks, conservationists and development finance organizations to pay off a part of their existing sovereign debt, replacing it with a new loan that typically matures later and carries a lower interest rate. As part of the deal, the nation agrees to spend the resulting savings on conservation efforts.
In Gabon’s case, it bought back three bonds, one maturing in 2025 and two in 2031, with a total nominal value of $500 million. The buybacks were equivalent to around 4% of Gabon’s total debt, according to Moody’s Investors Service.
In their place, Gabon issued a $500 million blue bond which matures in 2038. The coupon on the new blue bond was priced at 6.097%, lower than the coupons on the repaid bonds which were between 6.625%-7%.
The U.S. International Development Finance Corporation provided political risk insurance for the new blue bond, meaning it carries a far higher credit rating than Gabon’s sovereign debt and therefore is cheaper for Gabon to service.
As part of the deal, Gabon has committed to spend $5 million a year from the savings over the next 15 years on marine conservation and fund an endowment that is expected to grow to $88 million by 2038 to continue financing conservation work after that date.
The project will help support Gabon’s pledge to protect 30% of its land, freshwaters and oceans by 2030. The equatorial nation on the west coast of Africa, whose economy has largely been built on oil production, has shown strong interest in reshaping its economy around conservation. Its waters are a breeding ground for humpback whales and home to over 120 of the world’s most endangered or threatened marine species.
“The launch of Gabon’s Blue Bond is an important moment, giving us hope that green or blue financial mechanisms will grow significantly in coming years and help countries like Gabon,” said President Ali Bongo Ondimba of Gabon.
The Nature Conservancy, a U.S.-based environmental organization, sponsored the deal and will advise Gabon on its marine-conservation efforts.
Debt-for-nature deals have grown in size and frequency in recent years. The Nature Conservancy has largely spearheaded their growth, with the Gabon deal marking the organization’s largest by value following similar deals in Belize, the Seychelles and Barbados.
Ecuador completed a $1.6 billion debt-for-nature swap, the world’s largest, earlier this year, putting $12 million a year toward the conservation of the Galápagos Islands. TNC wasn’t involved in that deal.
Advocates of debt-for-nature swaps argue they can serve to funnel huge sums of private money into conservation and climate-friendly projects. Also, this financing arrangement allows developing nations to tackle their debt while funding programs to protect local wildlife and boost their economy.
On Wall Street, these deals have broadly met an enthusiastic response from investors increasingly eager to channel money toward environmentally conscious investments. Holders of emerging-market debt have also welcomed the deals’ efforts to improve the debt situations of the nations involved.
“These transactions are viewed as win-win. They are complicated, they have a market sensitivity and they are hard to pull off, but the countries that have done them today see their benefits,” said Scott Nathan, chief executive officer of the U.S. International Development Finance Corporation, adding that the development bank was working on other such deals.
Some environmental groups, including Greenpeace, have criticized the approach to tackling developing nations’ indebtedness and say the deals don’t provide sufficient benefit to justify the fees paid to the banks involved in the deals.
TNC says its blue bond deals have provided $400 million toward conservation efforts. Bank of America, which served as sole initial purchaser, structuring agent and bookrunner on the Gabon deal, declined to reveal its transaction fees.
Gabon’s blue-bond issuance was delayed in part because of market volatility and the bond’s yield was raised from 180 basis points over 10-year U.S. Treasurys to 200 basis points to revive investors’ interest.
Write to Will Horner at william.horner@wsj.com

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