Green ambition: A UBS shareholder arrives for a meeting in Basel. The firm’s involvement in the Barbados deal underlines its gradual expansion into nature finance markets following its takeover of Credit Suisse. — AFP
LONDON: UBS Group AG is working on its first-ever environmental, social and governance (ESG) debt swap, building on expertise it inherited from Credit Suisse after taking over the bank last year.
UBS will form part of a consortium of firms working to raise funds for a US$300mil refinancing arrangement for Barbados that will help fund climate-resilient infrastructure, according to a person familiar with the matter who asked not to be identified discussing private talks.
The transaction, which also involves a group of local banks, is expected to close in September, the person said.
A spokesperson for UBS declined to comment.
The arrangement, a variation on so-called debt-for-nature swaps, will be UBS’s first foray into a market that has been pioneered by Credit Suisse.
The swaps are designed to help governments retire old debt in exchange for new, cheaper loans, with savings assigned to environmental protection.
Though similar structures have existed for decades, Credit Suisse reconfigured the model back in 2021 to introduce private investors for the first time.
Credit Suisse has restructured about US$2.3bil of debt for governments spanning Belize to Ecuador, resulting in some US$1.2bil of new financing dedicated to nature conservation. That includes a US$150mil deal for Barbados completed in 2022.
Though still a niche market, some of the world’s biggest banks have shown interest in getting a foothold. Bloomberg previously reported that lenders exploring debt-for-nature swaps include Goldman Sachs Group Inc, HSBC Holdings Plc, Standard Chartered Plc and Citigroup Inc.
Last year, Bank of America Corp struck its first deal with a US$500mil swap for Gabon.
UBS’s involvement in the Barbados deal underlines its gradual expansion into nature finance markets following its takeover of Credit Suisse.
Last month, UBS held its first-ever conference dedicated to biodiversity finance, which the bank said was so popular that it had to turn some financial professionals away.
Its philanthropic arm is currently exploring the use of carbon and biodiversity credits to help build a business model for marine-protected areas. And last year, UBS’s asset management arm launched a so-called natural-capital engagement program.
While the first half of 2024 has seen no new debt-for-nature swaps involving private investors, about four are likely to be completed by the end of December, the person familiar said. Bank of America and another US bank are working on some of them, the person said.
A spokesperson for Bank of America declined to comment.
The swap underway for Barbados is designed to free up funds to help the country upgrade a sewage treatment plant, which will reduce water use and pollution.
The deal, which is being marketed as a debt-for-climate swap, is the first of its kind to target climate resilience and will help Barbados meet its national climate goals under the Paris Agreement.
The refinancing will be funded with at least US$300mil of new sustainability-linked debt, which will be raised through local currency loans and a new US dollar-denominated bond, said Sebastian Espinosa, managing director at White Oak Advisory Ltd, which designed the transaction and is advising Barbados.
Last week, the European Investment Bank (EIB) and the Inter-American Development Bank (IDB) approved joint guarantees for the deal, which will help reduce the cost of the new borrowing for Barbados.
Private-sector guarantees as big as US$75mil also are being targeted, Espinosa said. If achieved, these will help boost the size of the deal by as much as 20%, he said.
The arrangement is targeting “many firsts” that will make the “new debt swap architecture the most efficient and scalable to date,” Espinosa said. Those include a joint guarantee from EIB and IDB and the involvement of private-sector guarantors, as well as a focus on climate resilience instead of marine conservation, he said.
Barbados is targeting savings of up to US$130mil over 15 years, Espinosa said. —Bloomberg
