contributor
Only three climate-related
bonds have been issued
so far in South Africa.
However, as issuers and
investors look to their
sustainability ratings
and corporate social
responsibility initiatives,
the popularity of these
issuances is expected to
increase.
made use of green bonds as a source
of funding, potentially accessing a
different pool of green capital.
Rand Merchant Bank (RMB) acted
as lead arranger for the City of Cape
Town Green Bond, which included a
national investor roadshow that was
embarked on in June to market the
issuance. Although the local green
bond market is still in its infancy stage,
the issuance created tremendous
investor interest, which will hopefully
translate into increased demand for
this growing asset class.
RMB’s debt capital markets team is
a leading arranger of corporate bonds
in the South African bond market.
The team has extensive experience
in structuring and arranging a diverse
range of instruments on behalf
of its clients and has arranged two
of the three South African listed
green bonds. u
The CBI accreditation process involved
a comprehensive, in-depth pre- and
post-issuance assurance by an
independent verifier approved by the
CBI. In addition, the city has undertaken
to provide ongoing reporting to the
bondholders on the application of
the use of proceeds. These initiatives
assisted in providing investors with
the requisite comfort regarding the
ultimate use of proceeds. The Moody’s
certification was also important as it
highlighted the city’s long-term strategy
of adapting to climate change through
investments in water, sanitation, and
transportation projects.
Cape Town’s green bond supports
the city’s stance on climate change
a n d i t s c o m m i t me n t to a wa te r-
resilient city. Emergency plans to boost
water supplies during the current
drought include accessing the Table
Mountain aquifer, a temporary offshore
small-scale desalination plant, and
intensifying the city’s pressure and
demand management programmes
while also introducing a R120-million
small-scale waste management plant.
Medium- and longer-term programmes
include encouraging new design,
innovation, and technology in public
infrastructure and private households
to enable water saving procedures.
S o m e o f t h e s p e c i f i c w a t e r-
saving initiatives to be financed by
the City of Cape Town green bond
include upgrading of reservoirs,
the implementation of pressure
management systems with zone and
valve metering, treating effluent to
transform it into potable water, and
replacing and upgrading sewers and
sewer pumps.
Only three climate-related bonds
have been issued so far in South
Africa. However, as issuers and
investors look to their sustainability
ratings and corporate social
responsibility initiatives, the popularity
of these issuances is expected to
increase.
The issue of green bonds is
also encouraged by the launch
of the Green Bond Segment by the
Johannesburg Stock Exchange (JSE)
in September where green bonds,
which comply with its criteria, can be
listed on the exchange. The segment
is expected to cater for institutional
investors who are increasingly
d e ma n di ng s oci al l y r es pons i bl e
investment opportunities to address
their environmental, social, and
governance mandates, and for retail
investors who prefer sustainable
investments. It also provides
bond issuers with the opportunity
to brand themselves as socially
and environmentally responsible
corporate citizens.
Though still relatively unknown in
South Africa, climate-aligned bonds
and green-labelled bonds are already
prevalent internationally, with an
HSBC report estimating USD696-billion
climate-aligned bonds – defined as
bonds used to finance low carbon
and climate-resilient infrastructure –
issued to date.
Although internationally over 60%
of climate-aligned bonds are issued
by government entities, opportunities
exist for corporates across a number
of sectors. Financial institutions have
been an obvious fit for green bonds
in the past, with the proceeds often
being directed at green project
f i n a n c e d e a l s . H o w e v e r, l a r g e
corporations such as Apple Inc
(USD1-billion issued in June 2017 to
finance renewable energy and energy
efficiency at its facilities) have also
Angela Mokone is a debt capital
markets transactor at RMB.
Water Sewage & Effluent November/December 2017
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