Tuesday marked the beginning of what is anticipated to be Africa's first debt-for-nature swap, with Gabon announcing plans to buy up at least $450 million of its public debt and exchange it for an eco-friendly blue bond.
With estimates placing it at close to a third of the whole world population of the endangered species, Gabon's beaches and coastal waters are home to the largest number of leatherback turtles.
Debt-for-nature swaps, at their most basic level, involve a bank or specialized investor purchasing a country's debt and exchanging it for cheaper debt, sometimes with the assistance of a multilateral development bank "credit guarantee" or "risk insurance." The money saved will go toward supporting environmental protection. This idea has been touted by the African Development Bank for a while now.
The central African nation stated that it has "launched invitations to tender for the purchase by the Republic for cash of its 2025 Notes and 2031 Notes" in a regulatory filing on the London Stock Exchange. This led to a gain of up to 2.2% on the dollar for the three Eurobonds it mentioned.
Compared to the Gabonese government's promise to purchase back the bonds for 85 cents for every $1 of the bond, the February 2031 maturity increased by 2.203 cents to 83.702 cents, and the November 2031 maturity increased by 2.129 cents to 83.573 cents. The 2025 maturity increased by 1.194 cents to 95.4 cents, which is still less than the 96.75 cent offer price.
The agreement has been predicted for a while. The U.S. International Development Finance Corporation (DFC), as it has in previous agreements in Ecuador and Belize, would provide political risk insurance, according to industry sources who spoke to the American news agency, Reuters this year.
In May, Ecuador successfully completed a record-breaking $1.1 billion debt-for-nature exchange, releasing $18 million each year for the following 20 years for Galapagos Islands conservation.
According to bankers, a number of other African nations are also engaged in debt-for-nature negotiations, as are Sri Lanka and a number of Caribbean and Indian Ocean islands.
Credit guarantees are something that both the African Development Bank and the European Investment Bank are interested in. Deals spanning many nations may possibly be forthcoming in this rapidly growing asset class.
According to media reports, Bank of America (BAC.N) is assisting in the coordination of the Gabon agreement. A representative chose not to respond.