GREEN BOND MARKET RIPE IN ZAMBIA

We live in an era where the imperative to embrace sustainable practices has never been more pressing.

For developing economies like Zambia, the significance of going green resonates and remains a fundamental tenet for securing a resilient future. At the forefront of this paradigm shift are green bonds.

Green Bonds have emerged as powerful financial instruments, playing a pivotal role in shaping both the environmental and economic spheres. These bonds, dedicated to financing eco-friendly projects, embody a proactive step towards a more sustainable and responsible global economy.

What is more exciting is the registration of the first Green Bond registration announcement at the COP 28 on December 5, 2023 in Dubai.

One of the primary roles of green bonds is to channel funds into projects that promote environmental sustainability. These projects encompass renewable energy initiatives, energy-efficient infrastructure, and climate change adaptation measures. By doing so, green bonds contribute to the crucial task of mitigating the adverse effects of climate change and fostering a more sustainable future.

The impact of green bonds extends beyond ecological considerations, playing a pivotal role in stimulating economic growth. Investments in sustainable projects lead to the creation of jobs in emerging sectors such as renewable energy, clean transportation, and energy-efficient technologies. As these industries flourish, they contribute not only to job markets but also to innovation, further bolstering economic development.

Investors are increasingly recognizing the importance of incorporating Environmental, Social, and Governance (ESG) factors into their decision-making processes. Green bonds provide a dedicated avenue for responsible investments, attracting capital from individuals and institutions committed to aligning their financial activities with sustainable practices. This shift toward responsible investing helps build a financial ecosystem that prioritizes long-term environmental and social well-being.

Green bonds are instrumental in steering economies toward a low-carbon future. By funding projects that reduce carbon emissions and promote cleaner technologies, these bonds actively contribute to the global effort to combat climate change. The alignment with a low-carbon economy not only addresses environmental concerns, but also positions nations and businesses at the forefront of a changing economy.

Companies issuing green bonds often undergo rigorous assessments of their environmental impact and sustainability practices. This scrutiny encourages corporate responsibility, pushing organizations to adopt greener practices throughout their operations. As a result, the influence of green bonds extends beyond the specific projects they fund, fostering a culture of environmental responsibility among businesses.

Subsequent to the First Green Bond registration announcement at the COP 28 on December 5, 2023 in Dubai, the Copperbelt Energy Corporation PLC (CEC) also announced that the first tranche subscription towards the US$200 million green bond programme was oversubscribed by over 178 percent. The first tranche of US$ 53.5 million, issued as a private placement, to a select few investors closed on December 28, 2023.

The investors in the Green Bond include Emerging Africa Investment Fund who acted as the Cornerstone Investor and others were ABSA Bank, Atlas Mara Bank Zambia, and the African Local Currency Bond (ALCB) Fund.

Announcing the subscription allotment, CEC Managing Director, and Chief Executive Officer Owen Silavwe said “the response from a wide spectrum of investors has been extremely positive and encouraging. We are thankful to our partners for the support and hard work exhibited during the entire Green Bond process.

The financing raised through the Green Bond allows us to continue to finance the renewable energy development aligned to our strategy. We remain keen on actualising our green energy ambitions and the issuance of this Bond is an affirmation of our commitment to achieving our flagship 200 megawatt (MW) of solar energy.

We look forward to subsequent tranche subscriptions which should provide an opportunity for a diversified investor class to participate in a green and tradable instrument.”

James Doree, Head of Corporate Investment Banking at Cygnum Capital, the Bond’s lead arrangers, said, “we are committed to finding capital markets solutions for infrastructure and clean energy investment. This transaction, Zambia’s first non-recourse project bond and the first to be issued locally under the ICMA Green Bond Principles, demonstrates CEC’s leadership and impact, while also providing it with a flexible and scalable structure to roll out their renewables pipeline.”

Also commenting on the transaction, Paromita Chatterjee, Investment Director at Ninety-One, Fund Manager of the Emerging Africa Infrastructure Fund, said, “the willingness of a local and regional capital market to back an entirely new funding instrument highlights Zambia’s commitment to sustainably advancing its energy market. We are delighted to partner with CEC and act as the cornerstone investor, increasing investor confidence in a rapidly evolving sector.”

Theuns Ehlers, Head of Project Finance at Absa Group said, “this is an ingenious financing solution for Zambia and having a sponsor with strong operational and financial capabilities has helped the structuring and bankability of a private-to-private project finance bond raise. Therefore, we are very proud to be associated with this transaction.”

Bobbline H Cheembela, Atlas Mara Bank Zambia, Acting Managing Director said, “the Bank is delighted to be part of the first Green bond issuance in Zambia, which is expected to catalyse further green finance in Zambia’s energy sector”.

Mr. Cheembela also praised the Government of the Republic of Zambia for introducing various incentives to support Green Bond financing such as exemption from withholding tax. He further stressed that these incentives have enabled participation of both local and international investors and will assist in developing the Zambian debt capital markets and the inflow of hard currency into the country that will in part support the sovereign debt restructuring.

He concluded by saying, “we trust the CEC Renewables strategy will add to the power supply of the country.”

The proceeds from the bond will be deployed towards further solar generation investments and associated transmission infrastructure. CEC’s commitment to attaining its green energy generation ambitions of 200MW of solar energy generation is slowly being materialised. At present, it has an operational 34 MW solar plant, and under construction is a 60MW solar plant, targeted for commissioning in the first quarter of 2024.

The successful issuance of the first Green Bond is not only a pivotal moment for the CEC Group, but for Zambia and its capital markets, marking a clear demonstration of alternative financing options for the much-required diversification of energy sources in the country.

Therefore, the green bond market represents a pivotal tool for steering our Zambian Economy toward sustainability. By financing environmentally responsible projects, stimulating economic growth, attracting responsible investments, and encouraging corporate responsibility, these bonds have a transformative impact on both the environment and the economy.

As the world and Zambia in particular faces unprecedented environmental challenges, green bonds stand as a beacon, guiding financial systems toward a future where economic prosperity and ecological sustainability coexist.

The Author is an Economist and a multiple award winning journalist.