Gabon Wraps Up $500 Million Debt-for-Nature Swap

Gabon has completed a $500 million debt-for-nature swap that helps to refinance a small portion of its debt and locks in funds for marine conservation.

(Bloomberg) — Gabon has completed a $500 million debt-for-nature swap that helps to refinance a small portion of its debt and locks in funds for marine conservation.

Bank of America, Gabon and The Nature Conservancy said they closed the transaction on Tuesday, marking the first such swap done in continental Africa. Gabon bought back $500 million worth of three dollar denominated bonds for $436 million, according to Moody’s Investors Service. Those bonds — equivalent to about 4% of Gabon’s debt — were exchanged for a new longer-term $500 million loan that was funded, in turn, by an equivalent amount of new so-called blue bonds.

The deal’s launch “is an important moment, giving us hope that green or blue financial mechanisms will grow significantly in coming years and help countries like Gabon,” President Ali Bongo Ondimba said in a statement.

Gabon’s transaction was Bank of America’s debut venture into debt-for-nature swaps, a market pioneered by Credit Suisse Group AG. It proved a bumpy ride. The deal was delayed and the new blue bonds eventually got priced at a higher-than-expected interest rate, which lowered the savings for Gabon and prompted at least one major blue bond investor, TIAA’s Nuveen, to walk away.

Analysts have also questioned the debt risk reduction the transaction brings, given that a large chunk of Gabon’s near-term bond remains in the market on the original terms.

Read more Nuveen Walks Away From BofA’s $500 Million Gabon Debt Swap

The swap arrangement is expected to generate $125 million in funding for ocean conservation over 15 years and help the government meet its commitment to protect 30% of its sea by 2030. Those conservation payments are included in the coupon on Gabon’s new loan, according to Slav Gatchev, managing director of sustainable debt at TNC. The blue loan’s interest rate has not been disclosed. 

Gabon, which is gearing up for a presidential election later this month, currently has 20 protected areas covering 26% of its marine waters. The funds from the deal will help increase that area to 30% and raise the protection status of a larger portion, TNC said. 

The Gabon swap “is among a growing number of innovative financial opportunities advancing both biodiversity and climate goals for people and nature,” said Jennifer Morris, chief executive of TNC. The US International Development Finance Corp. is providing political risk insurance for the financing.

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Over the past few years, Belize, Barbados and Ecuador have struck similar deals. The arrangements are gaining traction among developing countries, policymakers and banks, which are lured by the fees and ESG credentials. Debt-for-nature swaps have been teed up as a hot topic at the COP28 climate meeting in November.

“We hope this transaction will serve as a blueprint that can be scaled for other countries,” said Paul Donofrio, vice chair of Bank of America.

Gatchev said TNC has a pipeline with about 20 countries appearing eligible for such swaps. “We should be able to continue with this clip of doing at least one, hopefully more, per year,” he said. 

Meanwhile, the deals are being resisted by nonprofits and analysts who point to their high costs, lack of transparency and strict conditions, often imposed by overseas entities. 

(Updates eighth paragraph on DFC’s role)

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