LONDON – Gabon has completed a US$500 million (S$678 million) debt-for-nature swap that helps to refinance a small portion of its debt and locks in funds for marine conservation.
Bank of America, Gabon and The Nature Conservancy said they closed the transaction on Tuesday, marking the first such swap done in continental Africa.
Gabon bought back US$500 million worth of three dollar-denominated bonds for US$436 million, according to Moody’s Investors Service. Those bonds – equivalent to about 4 per cent of Gabon’s debt – were exchanged for a new longer-term US$500 million loan that was funded, in turn, by an equivalent amount of new so-called blue bonds.
The deal’s launch “is an important moment, giving us hope that green or blue financial mechanisms will grow significantly in coming years and help countries like Gabon”, President Ali Bongo Ondimba said in a statement.
Gabon’s transaction was Bank of America’s debut venture into debt-for-nature swaps, a market pioneered by Credit Suisse Group. It proved a bumpy ride. The deal was delayed and the new blue bonds eventually got priced at a higher-than-expected interest rate, which lowered the savings for Gabon and prompted at least one major blue bond investor, TIAA’s Nuveen, to walk away.
Analysts have also questioned the debt risk reduction the transaction brings, given that a large chunk of Gabon’s near-term bond remains in the market on the original terms.
The swap arrangement is expected to generate US$125 million in funding for ocean conservation over 15 years and help the government meet its commitment to protect 30 per cent of its sea by 2030. Those conservation payments are included in the coupon on Gabon’s new loan, according to Mr Slav Gatchev, managing director of sustainable debt at TNC. The blue loan’s interest rate has not been disclosed.
Gabon, which is gearing up for a presidential election later this month, currently has 20 protected areas covering 26 per cent of its marine waters. The funds from the deal will help increase that area to 30 per cent and raise the protection status of a larger portion, TNC said.
The Gabon swap “is among a growing number of innovative financial opportunities advancing both biodiversity and climate goals for people and nature,” said Ms Jennifer Morris, chief executive of TNC.
Over the past few years, Belize, Barbados and Ecuador have struck similar deals. The arrangements are gaining traction among developing countries, policymakers and banks, which are lured by the fees and ESG credentials. Debt-for-nature swaps have been teed up as a hot topic at the COP28 climate meeting in November.
“We hope this transaction will serve as a blueprint that can be scaled for other countries,” said Mr Paul Donofrio, vice-chair of Bank of America.
Gatchev said TNC has a pipeline with about 20 countries appearing eligible for such swaps. “We should be able to continue with this clip of doing at least one, hopefully more, per year,” he said.
Meanwhile, the deals are being resisted by non-profits and analysts who point to their high costs, lack of transparency and strict conditions, often imposed by overseas entities. BLOOMBERG
