THE Tropical Landscapes Finance Facility (TLFF) on February 26 launched its first transaction involving a landmark US$95 million sustainability bond to an Indonesian joint venture to help finance a sustainable natural rubber plantation on heavily degraded land in two provinces in Indonesia.
The project incorporates extensive social and environmental objectives and safeguards, with the planted areas serving as a buffer zone to protect a threatened national park from encroachment.
The bond offering comprised five tranches with tenors ranging from five years to 15 years. This is the first corporate sustainability bond out of Asia and the first sustainability bond from Asean.
TLFF is a multi-stakeholder group launched in October 2016 to bring long-term finance to projects and companies that stimulate green growth and improve rural livelihood. The partnership is composed of ADM Capital/ADM Capital Foundation, BNP Paribas, UN Environment (UNEP) and World Agroforestry Centre (ICRAF).
Arranged by BNP Paribas, which also acted as the sole financial structurer, and issued by TLFF I Private Limited, the bond will finance Royal Lestari Utama, the Indonesian joint venture project between Michelin of France and Barito Pacific Group of Indonesia, for climate smart, wildlife friendly, socially inclusive production of natural rubber in Jambi, Sumatra and East Kalimantan provinces.
The project involves collaboration with WWF, which has worked with Michelin and Royal Lestari to set aside remaining high carbon stock and high carbon value forest in the Royal Lestari concessions, as well as critical wildlife conservation and riparian areas (the interface between land and a river or stream). Out of a concession area of 88,000 hectares, roughly 45,000 hectares will be set aside for community livelihoods and conservation.
In Jambi province, the two concession areas held by Royal Lestari and two WWF concessions form a contiguous buffer zone protecting the Bukit Tigapuluh National Park, which is one of the last places in Indonesia where elephants, tigers and orangutans co-exist. At maturity, the natural rubber plantation is expected to provide about 16,000 fair-wage jobs, providing a critical source of employment for local communities.
An initial 18,000 hectares of rubber were planted as of December 2017 and the TLFF bond issue will contribute to financing further development of the plantation. USAID has provided a partial credit guarantee on this first transaction. Such credit risk reduction mechanism is necessary to encourage private finance through the TLLF.
TLFF consists of a lending platform managed by ADM Capital with BNP Paribas as the structuring adviser and arranger of a medium-term note programme that provides liquidity to projects in sustainable agriculture and renewable energy. A grant fund will be managed by UNEP and ICRAF, and will provide technical assistance to projects, pipeline development as well as monitoring and evaluation project.
An estimated US$50 billion worth of financing is needed in landscape projects alone. This cannot come from just the public sector and requires the engagement of the private sector. TLFF is one initiative that is designed to help this happen.
TLFF I Private Limited is a newly-established special purpose vehicle incorporated in Singapore to issue the sustainable bond. The fixed rate offering consisted of US$30 million Class A notes due 2033, US$20 million Class B1a notes due 2033, US$15 million Class B1b notes due 2023, US$15 million Class B1c notes due 2025 and US$15 million Class B2 notes due 2033. The Class A notes are rated Aaa by Moody’s Investors Service.
Vigeo Eiris, an environmental, social and governance (ESG) research agency has confirmed the TLFF I issued bond as sustainable notes with positive contribution to sustainable development and aligned with the International Capital Market Association (ICMA) Sustainability Bond Guidelines.
Photo: Santi Andrini / Flickr
