The Seychelles’ 10-year blue
bond, a world first, had to overcome a number of structuring
issues including addressing risks associated to the
country’s BB- credit rating.
The $15 million issuance will finance
ocean protection projects and help the country’s
burgeoning fisheries sector. It has a coupon of 6.5% and will be redeemed
in three equal instalments of $5 million in 2026, 2027 and
"We couldn’t just pull
documents off the shelf," said Paul Hunt, partner at
Latham & Watkins, who advised the World Bank in this
transaction. "One of the big issues in investing in
environmental instruments of this type is a lack of liquidity.
Tax bases are too small to pay for these efforts and
governments of developing or small nations cannot afford huge
interest payments, which would be risky in any event."
"One of the big issues in
investing in environmental instruments of this type is
a lack of liquidity"
In order to alleviate these issues, the deal was supported
by the World Bank and the Global Environment Facility (GEF),
with the former providing a $5 million grant to guarantee the
bond, and the latter a $5 million loan to subsidise payment of
the bond coupons.
The loan provided by the GEF allowed for a
reduction in the price of the bond through partially reducing
the risk of the investment and reducing the interest rate for
the Seychelles government. As a result, the coupon to be paid
from other government resources is decreased from 6.5% to 2.8%,
and significantly helps to reduce the risk of default.
There are three
investors in the private placement: Calvert Impact Capital,
Nuveen and Prudential, all US-based and the reason why the bond
was issued in US dollars. The US dollar also helps to simplify the
structure of the bond, with the guarantee and GEF non-grant
instrument pilot also in US dollars.
The bond has no
individual credit rating as it was privately placed to these
three investors, so it is effectively being treated as
While the structure of the bond is unique,
Hunt said it was partly modelled on the green bond pioneered by
the World Bank more than a decade ago.
The World Bank has a history of
guaranteeing loans on the one hand and widely held sovereign
bonds on the other. Given the high concentration of the initial
noteholder pool in this transaction, the World Bank worked to
create a hybrid structure from its own precedents, with
elements of both types of guarantees.
This new structure is something that the
World Bank wants to use as a model for island and coastal
nations in the future.
The bond is also innovative because of the
way the proceeds are to be used. They will be put towards the
management of sustainable-use marine protected areas and
priority fisheries, and to expand seafood value chains to
maintain sector growth while fish stocks are
Jan Robinson, technical assistant at the
Seychelles Ministry of Finance, Trade and the Blue Economy said
element in the design of the transaction was that the bond is
priced at market rather than concessionary rates.
"Therefore, though this is the
first of its kind, it’s likely to stimulate market
interest and potential uptake by other sovereigns and capital
investors," he said.
The blue bond forms an integral
part of the financing for a $25.3 million project by the
government of Seychelles, called the Third South West Indian
Ocean Fisheries Governance and Shared Growth
"Leveraging several funding
sources generates scale for project impacts and reduces overall
risk," said Robinson.
Though the bond is small in
market terms, it’s significant in relation to the
current value of the fishery and aquaculture value chains in
Seychelles. It’s hoped it will provide significant
and sector-wide transformation through carefully targeted
- The 10-year issuance has a coupon of 6.5% though
credit enhancement means the coupon payable by the
government of the Seychelles is reduced to 2.8%.
- The deal was supported by the World Bank and the
Global Environment Facility, with the former
providing a $5 million grant to guarantee the bond,
and the latter a $5 million loan to subsidise payment
of the bond coupons.
The legal team
comprised Clifford Chance acting as transaction counsel for the
government of the Seychelles and Latham & Watkins as
external counsel for the World Bank. Standard Chartered acted
as placement agent for the bond.
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