ESG bonds come in various forms. Two such common forms are Blue Bonds and Green Bonds. Blue Bonds are for ocean conservation. Green Bonds are for conservation of plants, trees, and nature on land.
Gabon has issued Blue Bonds (actually termed as “debt-for-nature” swap) to fund marine conservation. The funds raised by the sale of these bonds would be used for conservation of endangered leatherback turtles, Atlantic humpback dolphins, manatees, and sawfish. The total value of the bond issue is about $500 million.
These bonds have beed issued and backed by the government of Gabon with the support of Bank of America acting as an investment banker. Bonds issued by some developing and least developed countries carry a lot of credit risk, particularly arising from political risk. Generally, international institutional investors stay away from these bonds. To support these bonds, the U.S. International Development Finance Corporation provides political risk insurance so that U.S. Institutional Investors get protection from political risk and thereby would be more forthcoming to invest in such bonds. This insurance helped the bonds to get a Aa2 credit rating from Moody’s.
Now, Gabon has a lot of political risk. After these bonds were issued there was a military coupon on 30th Aug 2023. The military rulers promised that all international agreements would be respected. No one knows this for sure but U.S. investors of these bonds are protection.
By the way, these bonds are issued to retire old bonds. The old bonds carried a coupon of 6.625% - 7%, while the new bonds carry a coupon of 6.097%.
