Green bonding

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The City of Johannesburg recently listed COJGO1, the first municipal green bond, on the JSE. It will be used to fund green initiatives in South Africa’s biggest city. BBQ magazine takes a closer look.

The United Nations Environment Programme defines a green economy as ”one where income and employment growth are driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, as well as prevent the loss of biodiversity and ecosystems”.

South Africa, like all other countries, must adapt to the growing scarcity of non-renewable resources, while meeting the challenges posed by pollution and climate change. The only solution is to harness innovation and co-ordinate proven and cost-effective government policy and action to build a green economy.

Innovation is taking place all over the world and Africa—South Africa in particular—has a big role to play. For most of it, local government is ready to play its part. We are implementing policies to help generate economic activity and innovation, and we play a major role transportation, water treatment and energy use, which makes us uniquely placed to drive the shift to a green economy.

A prime example of this comes from the City of Johannesburg. Dedicated to funding green initiatives in South Africa’s biggest city, Johannesburg recently listed its first green bond worth R1.46 billion on the JSE.

The bond, which will mature in 2024, is priced at 185 basis points (1.85%) above the very competitive R2023 Government Bond and reflects the city’s improved financial position. City of Johannesburg Mayor, Parks Tau, says “This is the first green bond to be listed in the 2013/2014 financial year and marks a historic occasion, as Joburg is the first city in the C40 Cities Climate Leadership Group to issue the Green bond.”

The City of Johannesburg was also pleased to announce that the bond auction was a success and 150% oversubscribed. “This clearly demonstrates investor confidence in City of Johannesburg and commitment to environmental stewardship and climate change, while receiving a market-related financial return. The City would like to thank all the investors that made this debut Green Bond a success.”

The JSE regulates the largest listed debt market in Africa, both by market capitalisation and by liquidity, with approximately R25 billion traded daily. At the end of 2013, the JSE had roughly 1 600 listed debt instruments worth more than R1.8 trillion. More than half of the debt listed on the JSE is placed by the South African government.

“The JSE has always been linked to the development of our city and we are pleased to work with the City of Johannesburg to bring this bond to market. Funding green projects are important in all cities to ensure their greater sustainability,” says Graham Smale, Director of Bonds and Financial Derivatives at the JSE. Johannesburg is the first city in the C40 Cities Climate Leadership Group to issue a green bond.

Standard Bank Group has acted as co-arranger on the bond, which pays an annual coupon of 10.18%. Standard Bank arranged the sale of the instrument, which will be used to fund projects ranging from efforts to reduce greenhouse gasses to renewable energy initiatives, in partnership with black economic empowerment firm, Basis Points Capital.

Zoya Sisulu, Debt Primary Markets at Standard Bank, says the bank is in the fortunate position to possess a wealth of internal knowledge and intellectual capital on sustainable initiatives and therefore is able to deploy that intellectual property in structuring this bond. “Our credentials in the green financing space were the main reason that the City of Johannesburg partnered with us.”

The City of Joburg hosted the fifth biennial C40 Cities Climate Leadership Group Mayors Summit in February this year in an effort to advance urban solutions to global climate change through international collaboration and dialogue. The C40 Cities Climate Leadership Group (C40) is a network of the world’s megacities committed to addressing climate change.

By issuing its debut green bond, the City of Johannesburg has become the first member of the C40 cities across the world to issue such an instrument. The money will be used to fund sustainable projects and conduct efficiency upgrades across four key areas of the city’s infrastructure: power, water, parks and transport.

Standard Bank Group received bids for the bond totalling approximately R2.2 billion, roughly 1.5 times the amount available. The bond was sold to domestic investors who exhibited a strong appetite for an asset class that encapsulated the principles of environmental, social and government responsibility.

“Green bonds are still a developing asset class across the globe but appetite for these instruments is strong and increasing, given the number of investors who are mandated to have a certain amount of exposure to environmentally benchmarked instruments. We believe there is tremendous scope for further issuance of such bonds by other metropolitan districts in South Africa, particularly those wishing to deploy capital towards environmentally sustainable projects,” says Sisulu.

Standard Bank Group was included on the Emerging Markets Index of the 2013 Dow Jones Sustainability Index and was ranked as Africa’s greenest bank and the 12th greenest bank globally in the 2013 Bloomberg Markets Top 40 Greenest Banks rankings. Standard Bank was also awarded Sustainable Bank of the Year for the Africa/Middle East region in the Financial Times/International Finance Corporation Sustainable Finance Awards 2013.

According to the City, the Green Bond will provide it with a funding source to improve and expedite the implementation of its climate change mitigation strategy and move it towards a low carbon infrastructure, minimal resource reliance and increased preservation of natural resources. What distinguishes this green bond from any other general obligation bond is that the projects to be financed are green initiatives such as the Bio Gas to Energy Project and the Solar Geyser Initiative, as well as all other projects that reduce green house emissions and contribute to a resilient and sustainable city.

The bond will be used to fund climate change mitigation strategies, especially those that include greater use of gas and natural energy. One of the city council’s green programmes include the installation of 43 000 solar water heaters by City Power that will collectively save the equivalent of 22.5GW-hours of electricity a year, enough to run a small town.

The City of Johannesburg isn’t new to finding innovative funding mechanisms; it also pioneered the first general obligation municipal bond in 2004. The City has successfully redeemed R1.9 billion since the inauguration of the municipal bond market including R900 million over the past year.


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