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Gabon's plan to repurchase US$450 million of its public debt through the issuance of eco-friendly blue bonds has sparked widespread interest among investors and across Africa, raising hopes for similar deals.
Gabon’s plan was first revealed in a regulatory statement filed on the London Stock Exchange on July 25, announcing Gabon's invitations to tender for cash purchase of its 2025 and 2031 bonds. On August 8, the country announced that its request had seen investors tender more than double the advertised US$450 million.
“Blue bonds concentrate specifically on initiatives associated with the ocean realm,” explained Miguel Monteiro, President of Cabo Verde's Stock Exchange, who is keen to see more deals like Gabon's.
Currently, Gabon hosts a third of the global leatherback turtle population and the country's ability to protect them is a key pillar of the blue bonds. The central African country is a host to 20 marine protected areas including 9 marine parks and 11 aquatic reserves spanning close to 30% of Gabon's marine space.
Gabon's deal is similar to recent successful swaps in Ecuador and Belize.
This move couldn't have come at a better time for Africa with the debt-for-nature swap market set to skyrocket, potentially exceeding US$800 billion globally, according to a Bloomberg report.
As Monteiro explained, the issuance of blue bonds is characterised by a rigorous 6-step process and has until now been less sought after as a sustainability financing model.
The process has been tougher in Africa due to a lack of institutional capacity, limited access to financial markets, lack of well-structured projects and limited monitoring capacity.
However, there are ongoing efforts to increase the adoption of blue bonds in Africa, including by nations like Cabo Verde, whose stock market is keen to support a number of sustainability financing option
"Cabo Verde, for instance, recently established the BLU-X platform, a regional listing and trading platform for sustainable and inclusive financial instruments geared towards a sustainable economy," Monteiro said.
Tailored financial instruments and sustainable economic diversification are other sustainable financing options, he explained.
For example, the African Development Bank is exploring the establishment of a revolutionary debt-for-nature swap exchange program that could unlock more deals, including some featuring multiple countries.
In a July interview with Bloomberg, Hassatou Diop N'Sele, the vice president for finance who is also the bank's chief financial officer, disclosed the facility's first swap deal was in the works.
"We're looking at one transaction…still discussing the parameters," he noted.
NatureFinance, a global nonprofit that advocates for debt-for-nature swaps, predicts that sovereign sustainability-linked bonds from emerging economies could surge from $3.5 billion in 2022 to $400 billion by 2030.
More significantly, blue bonds could be used as a regular tool for debt management, which is witnessing more and more niche deals. For example, in January, Portugal and Cabo Verde agreed to swap US$152 million of Cabo Verde's debt.
However, Monteiro cautioned that a lot of work would be required to support the process.
“There is need for thorough preparation, clear taxonomy and project focus, early engagement with stakeholders, operate with a long term vision and adaptation of deals for local context to achieve optimal impact,” Monteiro said.
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