{"id":572632,"date":"2020-07-01T04:56:09","date_gmt":"2020-07-01T04:56:09","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/how-2020-is-already-the-year-for-egyptian-green-bonds\/"},"modified":"2020-07-01T04:56:09","modified_gmt":"2020-07-01T04:56:09","slug":"how-2020-is-already-the-year-for-egyptian-green-bonds","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/how-2020-is-already-the-year-for-egyptian-green-bonds\/","title":{"rendered":"How 2020 is already the year for Egyptian green bonds"},"content":{"rendered":"

\n <\/a>
\n 2020 is the year green bonds become real in Egypt:<\/strong> Both the
\n private sector and the government have for long been mulling the issuance of
\n green bonds to diversify funding sources and unlock finance for projects at a
\n lower interest rate against traditional means of funding. The private sector
\n has come out ahead, with CIB already on track to
\n offer Egypt\u2019s first green bonds<\/a >. Next on deck will likely be an issuance from the Finance Ministry, which is cooking up its first issuance in FY2020-21. Green bonds are expected to pave the way for infrastructure bonds<\/strong >, as we noted in our feature on them back in February<\/a >. <\/p>\n

So, what are green bonds?<\/strong> A green bond is a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects. The World Bank was the first organization to offer green bonds in 2008 and has since<\/a > issued over USD 13 bn equivalent in green bonds through more than 150 transactions in 20 currencies. <\/p>\n

The new tool was already picking up momentum in Egypt before the covid-19 crisis,<\/strong > when EFG Hermes was said to be in talks<\/a > to manage an unnamed state company\u2019s green bond offering. Regulators, meanwhile, were deciding<\/a>
\n whether to approve an EGP 500 mn green bond issuance by an unnamed Norwegian
\n renewable energy company, suggesting demand for this type of funding. At the
\n same time, the Finance Ministry was at the size and timing of the
\n infrastructure bonds the state may issue in FY2020-2021, Finance Minister
\n Mohamed Maait had said.\n<\/p>\n

\n CIB will be the first to test the water with a USD 65 mn offering:<\/strong\n >
\n CIB is preparing to take to market a green bond in collaboration with the
\n International Finance Corporation (IFC), Heba Abdellatif, head of debt capital
\n markets at CIB, told Enterprise. The two parties are hoping to finalize the
\n issuance through a private placement by 3Q2020. The proposal, which is still
\n in the due diligence phase, will see the IFC invest USD 65 mn in the first
\n tranche of the five-year bonds. \u201cThough this is a relatively small investment,
\n it is aimed to test appetite for Egyptian green bonds,\u201d Abdellatif said.
\n \u201cIf successful, the IFC will bring its investment up to USD 100 mn in
\n another tranche.\u201d
\n <\/strong>\n<\/p>\n

\n What will proceeds be earmarked for?<\/strong> It remains to be seen
\n which projects will be financed through this green bond issuance, only that
\n CIB has a pipeline of projects in place. Among them is a program to make
\n buildings more energy efficient, the bank told us. The IFC will also share its
\n expertise in climate finance to help CIB build its expertise in climate
\n finance eligibility criteria, greenhouse gas emission savings calculation,
\n green bond reporting, and green building financing. It could also invest up to
\n spur the construction of green buildings in Egypt.\n<\/p>\n

\n Globally, green bond issuances were gaining steam \u2014 then covid-19 hit. <\/strong\n >Global issuances of green, social, and sustainable bonds were forecast to
\n rise 24% to USD 400 bn this year, with green bonds alone
\n accounting for USD 300 bn.<\/a\n >
\n Through the
\n first five months of 2020<\/a\n >, green bond issuances were 36% lower in value than last year at a modest USD
\n 66.6 bn compared to USD 261.9 bn in the same period of 2019. Issuances by
\n financial institutions were halved as the pandemic shifted the banks\u2019
\n priorities towards supporting existing customers as they scrambled to cope
\n with the economic slowdown. Moody\u2019s
\n slashed<\/a\n >
\n its green bonds sales projections for 2020 to USD 175-225 bn from its original
\n USD 300 bn forecast. This is becoming the trend globally, including in Japan,
\n whose green bond issuance may drop this year for the first time in at least
\n seven years, despite issuing a quarterly record of USD 2.7 bn of green bonds
\n from January to March,
\n according to S&P<\/a\n >.\n<\/p>\n

\n Among those staying the course on green bonds: <\/strong\n >Deutsche Bank<\/a\n >,
\n Russia<\/a\n >,
\n Sweden<\/a\n >
\n and Brazil, which has
\n announced plans<\/a\n >
\n to build 8 GW of renewable energy projects with funding funneled from green
\n bonds.\n<\/p>\n

\n The global slowdown in issuances doesn\u2019t faze CIB.<\/strong> Abdellatif
\n told us that since the bank\u2019s bond offering will be through a private
\n placement, they are not worried about finding investors. The IFC is also not
\n alone:
\n Several other multilateral institutions have been in talks with the CIB for
\n similar investments<\/strong\n >, Abdellatif said without disclosing the details of the talks. \u201cCIB has been
\n considering green bonds for over 18 months and has talked with several
\n institutions to assist the bank\u2019s first foray into the green bonds field,\u201d she
\n said. \u201cWe think it is either now or never.\u201d\n<\/p>\n

\n The government is also undeterred. <\/strong>Unlike other new-to-Egypt
\n debt instruments such as sukuk that
\n require a separate legislation<\/a\n >, green bonds don\u2019t. Moreover, thanks to the lower interest rate, green
\n bonds
\n will be the leading alternative<\/a\n >
\n for traditional debt instruments, such as USD-denominated Eurobonds.\n<\/p>\n

\n There are four main reasons why the Finance Ministry has been particularly
\n interested in green bonds<\/strong\n >, Finance Minister Mohamed Maait told Enterprise:\n<\/p>\n