FREE: IFC China WTE warrant subscription explained

Author: Ashley Lee | Published: 21 Mar 2012
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The International Finance Corporation’s (IFC) subscription on March 5 to a warrant issuance by China waste-to-energy (WTE) projects company, C&G Environmental Protection Holding will bolster its involvement in country’s nascent renewable energy sector. But the use of warrants was not the IFC’s preferred option as the organization tends to invest directly to form long-term partnerships.

The SGD6.3million issuance by the Singapore-listed, Hong Kong-based C&G Environmental Protection Holdings’ comprised 34,008,108 unlisted warrants.

C&G finances and operates municipal WTE plants in China via build-operate-transfer investment schemes. The proceeds are expected to be used for the maintenance of its five operating plants, as well as five new plants that will open between 2012 and 2013.

IFC’s in-house counsel, Lachlan Jackson, told IFLR the decision to use warrants had been made in an attempt to address the valuation volatility on the Singapore Exchange.

“We used warrants to make an investment in a company to cope with the market conditions which made it difficult to agree upfront on pricing,” he said. “Other investors could have bought shares on the secondary markets. But, our mandate is to achieve development, so we chose the warrant route.”

“We may use this instrument again, when we encounter volatile market conditions,” he said.

This investment may signal further IFC collaborations with C&G, Jackson said. C&G had a good track record, he said, and was willing to work to the World Bank’s and IFC’s performance standards for environmental and social issues.

“This is the first step in what we hope is a longer-term relationship with the company in relation to their projects”, he said.

As the member of the World Bank Group focused on private sector development, IFC has been a global promoter of sustainable investments. The deal comes after the China Banking Regulatory Commission’s (CBRC) introduction last month of green-credit guidelines for commercial lenders to incentivise projects with lower environmental impacts. IFC has served as an advisor to the CBRC on these guidelines as well.

The measures outline general standards, instructing banks to evaluate the energy consumption and environmental impact of proposed projects and encouraged banks to cut loans to industries that cause high energy consumption or elevated levels of pollution.

The CBRC also indicated that key indices and specific quantitative measures to rate green lenders are forthcoming.