April 1, 2019/United Capital
Following the commencement of the NSP SPV PLC 15 YEAR 15.60% Guaranteed Fixed Rate Senior Green Infrastructure Bond Programme, Solape Oguntayo, Team Lead, Capital Markets, in a recent interview shares insights about the Bond.
Q: How does the NSP Bond classify as a Green Bond and what is the impact of the Green Infrastructure Bond on the economy and Nigeria as a whole?
A: Green bonds, also known as climate bonds, are fixed income securities issued to finance or refinance projects that are environmentally friendly for example ; renewable energy, pollution prevention and control, terrestrial and aquatic biodiversity conservation, eco-efficient and circular economy adapted products, or clean transportation to name a few. . The NSP Green Bond was certified by TUV NORD CERT, an approved verifier under the Climates Bonds Standard in conformance with the International Capital Market Association’s (“ICMA”) Green Bond Principles; the Nigerian Federal Ministry of Environment’s Nigerian Green Bond Guidelines; and the Green Bonds Issuance Rules of the Nigerian Securities & Exchange Commission.
The impact of the Green Bond on the economy of Nigeria is mainly because of its use of proceeds which supports both Nigeria’s international commitments to the United Nations Framework Convention on Climate Change (UNFCCC) through Intended Nationally Determined Contributions (INDCs) and it’s in full alignment with the Global Goals for Sustainable Development (SDGs). The successful issuance of these bonds not only supports the Nigeria’s international commitments but also serves as a platform and window of opportunities for other similar issuers who are looking to raise funds via this unique window.
Q: What role did United Capital play on the bond and what were the challenges faced during the Transaction?
A: United Capital acted as the Financial Adviser and Lead Issuing House on the transaction.
The major challenge faced during the transaction was majorly around sensitization of investors on pricing of the bonds and the uniqueness of the Offer during the book building process. Being the first green bond to be issued in the Nigerian market, it was imperative that investors understood the peculiarity of the instrument. In addition, the guaranteed bond structure further required intentional engagement and education of investors. It was important to us that the investing public clearly understood these considerations in guiding investment decision particularly on pricing. Upon conclusion, the Offer was 60% oversubscribed which showed that investors, particularly pension fund administrators are now willing to diversify their portfolios from the traditional vanilla bonds.
Q: We understand that the Bond was 100% guaranteed; what impact does this have on the Bond. Also, what is the advantage of Investors who invested in the Bond on their portfolio?
A: The Bond was 100% guaranteed by Infrastructure Credit Guarantee Company Limited (“InfraCredit” or the “Guarantor”) which is an enhancement facility to the credit quality of the bond. This implies that the Bond assumes the rating of the guarantor of AAA’ national scale credit rating which further boosts the confidence of investors in investing in the bond.
Apart from the diversification advantages on the investor’s portfolio, the guarantee on the bond significantly reduces default risk on the part of NSP.
In addition, the guarantee provided an added tenure benefit as the bond was tenured at 15year which without the guarantee could have attracted a higher pricing
Q: What will be your advice or recommendation to other companies or industries looking to issue a green bond or any other innovative Bond such as this?
I would say timing is key. We are now at a time where investors are now keen to participate and add new innovative products to their portfolios. Although return is key to any rational investor, there is an added interest on diversification of portfolio; which creates an opportunity for corporates to position themselves to tap into this window. It is however important to stress that such companies should take critical steps in ensuring they are ripe for a capital market transaction. The capital market fund raising options are very thorough and require a high level of corporate governance which regulation enforces. Whilst funding is available, Investors still require some level of comfort before embarking on such an investment.
Which is why we are here, we have properly scoped the market and understand investors’ appetite and regulator’ requirements which combined will ultimately lead to a successful capital raise, thereby meeting the funding requirements of our clients.
Q: What are the requirements for a corporate that wants to issue a green bond (basic requirement)?
A: A number of requirements are key however the main ones include; an investment grade rating from a credible rating agency, a Pencom clearance certificate for PFA investment eligibility, atleast 3 years audited account; a strong and experienced management team, and a sound corporate governance structure to name a few.
Q: Outside of the green bond, how has United Capital assisted clients in the capital market space;
A: United capital has played a pioneering role in developing the debt capital markets in Nigeria having participated in 70% of the transactions executed in Nigeria. It is noteworthy that in the last 5 years, United Capital has invested up to c.N78bn of its funds under management in CPs and bonds issued by corporates and State governments thereby helping to meet various Clients’ funding objectives. Our strength is evident in our ability to not only provide advisory and capital raising services to our clients but also to deploy our funds by investing in transactions and thereby meeting and surpassing our clients expectations.
Q: What makes United Capital the go to Investment bank for Green bonds and other capital market service?
A: We have a flexible, nimble, diligent, adaptable and resilient team with big ticket deal experience, who are able to anticipate and respond quickly to changing transaction dynamics as can be expected in any transaction. United Capital has a proven track record of providing strategic transaction advice to companies accessing debt both locally and internationally. Our time to market is second to none which we have been able to demonstrate as one of the most active Investment banks/Issuing houses in Nigeria.