After helping Belize restructure $553 million in sovereign bonds in exchange for scaling up marine protection, Kevin Bender at The Nature Conservatory says there’s potential for more blue finance deals in Latin America and the Caribbean.
The Blue Bonds for Ocean Conservation is an evolution of what we’ve been doing in conservation financing. We started in the early 90s through what’s called a traditional debt-for-nature swap. The money a government would pay another government to retire debt would be for putting a forest or coral reef under protection, covering the cost for the conservation. The next step in our evolution was a deal in the Seychelles in 2016. After discussing it with a few Paris Club investors and governments that were lending to the country’s government, we helped retire just under $30 million in debt by finding new investors to come in and replace the existing ones. In exchange, the Seychelles put 30% of their ocean under protection.
Our group took the Seychelles deal and turned it into the Blue Bonds for Ocean Conservation Program. Through the program, we work with countries to restructure their debt and create cash flow for conservation. In some countries we can get debt at a discount price, buy it cheaper and therefore pass the savings on to the government. The government commits some of the money they would have paid before to placing 30% of their ocean waters under protection.
Image: Kevin Bender
We’ve built the program this way because we see a high gain for both the country and investors. What we’re doing is taking the loan and putting the insurance policy of the US International Development Finance Corporation (DFC) on it, as well as our parametric insurance. We then issue the blue bonds that Credit Suisse is issuing in the market, and those become very low-risk bonds. We’re switching from a very small universe of investors to a very large universe of investors. Every pension fund, every insurance company on the planet, every asset manager, or most asset managers, buy AAA-rated paper.
We have three goals in this program. One is to put 600,000 square kilometers of ocean under high protection by 2030, and then we want to put 4 million square kilometers under managed protection where governments are actively managing the areas.
One of the commitments that governments must make for us to work with them on the debt side is to do a marine spatial plan. TNC works with the governments on protecting the biodiversity and conservation of that marine spatial plan to ensure that their commitments go up to 30 percent. The program is also trying to raise $1.6 billion for conservation finance to help make that work.
This is a much cheaper source of finance for some countries. When we first started talking to Belize, their bonds were trading at around 40 cents on the dollar, perhaps a little bit lower. That market price was implying that they basically would have to borrow at something like 16 percent if they could get someone to lend to them. When we made the loan to them, it was 6.1 percent. Using that math, it’s roughly 10 percent cheaper than what they were looking at in the market. That was a considerable savings just on the interest alone.
We also reduced their principal outstanding. They are paying a lower interest rate on a lesser amount. It’s a double savings for the government. We also worked with them on the structure, extending the maturity and giving them step-up coupons so they would have very little payment in the beginning because the Belize government needed to get out of their economic crisis.
“The likely candidates are the countries that have debt that’s trading at a discount rate like Ecuador and Argentina.”
Kevin Bender
We’ve been talking with several countries for a while now, not just in Latin America and the Caribbean. TNC has a lot of offices and a lot of relationships in the Latin American and Caribbean region. We’re trying to exhaust all of those and talk with every government that we can. The likely candidates are the countries that have debt that’s trading at a discount rate like Ecuador and Argentina.
Belize had a very high interest in conservation. Their economy is very interlinked with the ocean. The milestones we came up with to ensure the right protection was done in a satisfactory manner to TNC and TNC scientists, and very much to an interactive stakeholder engagement not just only with the government, but also with the NGOs and the businesses and everybody involved in the Belizean economy.
We are in different levels of negotiation with several countries. Let’s say between five and 10 countries. Some we are just starting to talk to, while others we’ve been talking to for quite some time. We did get approval from the DFC board to work on deals with Kenya, Saint Lucia and Barbados, which are the only three deals we’ve publicly discussed. The countries that we are willing to work with are pretty much any country that has a coastline and has debt that can be restructured cheaper, not just a country that has debt that is trading at a discount but happens to have more expensive debt. Some countries sometimes take what’s called bridge loans or short-term loans that are very high interest, and they cannot pay them back and keep paying high interest. Even if their debt is trading at nothing, no discount or even a premium, but they have expensive debt. LF
Kevin Bender is the senior director of sustainable debt at The Nature Conservatory. This is an edited transcript of his comments in an interview with Hernán Goicochea.