Photo of Patrick Payet, Republic of Seychelles and Meg Coates.
The Seychelles is an archipelago of 115 islands in the Indian Ocean. It is home to numerous beaches, coral reefs and nature reserves, as well as rare animals such as giant Aldabra tortoises. Mahé, a hub for visiting the other islands, is home to the capital Victoria.
Environmental sustainability is a key objective for the Republic of Seychelles (‘Seychelles’) and it is committed to supporting the development of a sustainable marine economy. To finance this, it was seeking to issue a flagship transaction that reflected its social and environment responsibilities, whilst achieving competitive pricing.
Seychelles returned to the capital markets with the successful issue of a US$15m ten-year US 4(a)2 notes (‘Blue Bond’) in October 2018. Standard Chartered acted as placement agent and 100% of the proceeds are earmarked for supporting the development of a sustainable marine economy.
The transaction was backed by a US$5m principal only guarantee from the International Bank for Reconstruction and Development (the ‘World Bank’). The deal marks the first ever ‘blue bond’ issuance and is the third World Bank guaranteed financing arranged by Standard Chartered. Noteholders also benefit from a US$5m deposit placed with the Central Bank of Seychelles as part of the World Bank’s Global Environment Facility (GEF) Programme which will be drawn-down to meet Seychelles’ debt service obligations under the bond.
This transaction marks the first ever ‘blue bond’ issue, establishing a framework for further issuances in this space. There was a steep learning curve to establish a framework for the issuance to offer terms and conditions that would meet the existing socially responsible investment (SRI) criteria for the target investor base.
The debt was fully placed into SRI portfolios and, to achieve this, Standard Chartered worked closely with the World Bank to pre-identify investors with large SRI portfolios with a mandate to invest in ‘blue’ financing. Given the strong interest from US investors and the need to market in a private-placement format, the deal was documented in a US 4(a)2 format which enabled Seychelles to attract US investors, who ultimately comprised 100% of investors.
In addition to fulfilling Seychelles’ strict SRI credentials, Seychelles was also able to maximise the value of the World Bank guarantee in the form of longer tenors (ten years compared with three to five years) and more competitive pricing (equivalent to a benefit of 200-250 bps) than it could achieve on a standalone basis.
Financial – Seychelles obtained optimal terms by using the World Bank guarantee to achieve more competitive pricing, equivalent to 200-250 bps, and a longer tenor than it would achieve without this guarantee.
Economic – the proceeds of the issuance would be dedicated to support Seychelles’ expansion of marine resources and transition to sustainable fisheries, the country’s second largest industry, contributing 95% of the total value of domestic exports.
Environmental – Seychelles’ major industries, tourism and fishing, are both highly dependent on marine conservation, as well as the quality of life for its citizens.
Reputational – after an eight-year hiatus, Seychelles has re-entered the capital markets with a fully subscribed, highly innovative ‘blue bond’ offering that meets the growing need for high quality SRI investments whilst proving its commitment to both financial and environmental responsibility and sustainability.
“Proceeds from the bond will also contribute to the World Bank’s South West Indian Ocean Fisheries Governance and Shared Growth Programme, which supports countries in the region to sustainably manage their fisheries resources and increase economic benefits from their fisheries sectors,” explained Patrick Payet, Principal Secretary for Finance. “As with the first ‘green bonds’ launched a decade ago, our transaction is a landmark that will pave the way for future ‘blue’ issuance to help protect our oceans. A number of other sovereign issuers are already actively exploring this space.”