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How green bonds in capital markets create depth for real estate

Sustainable finance
Sustainable finance is increasingly becoming a key focus for domestic financial institutions in Kenya. FILE PHOTO | NMG 

When veteran French conservative politician and former head of the International Monetary Fund (IMF), Christine Lagarde was being interviewed to become the first female president of the European Central Bank – the most powerful economic institution in Europe, according to a green business new site Climate Change News, her pitch suggested that the bank should phase out climate-warming investments and move gradually transition towards green products.

Lagarde’s view is firmed up in growing acceptance that the world today not only has to confront an economic crisis, with rising levels of poverty, and insecurity but also a climate and environmental crisis, with potentially severe consequences for humankind.

Closer home, the pursuit of climate change adaptation estimated at Sh2.3 trillion ($20-30 billion) annually over the next 10 to 20 years according to Kenya’s Green Economy Strategy and Implementation Plan (GESIP) is urgent. Equally important is the incalculable destruction effects of climate change, manifested in natural disasters, left across Kenya in the recent past.

The recent closing of Kenya’s first ever Green Bond by Acorn Project (Two) Limited Liability Partnership, a Sh4.3 billion bond, supports a Big 4 Agenda priority, investing in affordable, environmentally friendly housing for over 5,000 students in Nairobi, is a milestone in Kenya’s transition to a low-carbon economy.

Acorn will use the proceeds of the bond to construct purpose-built student accommodation buildings that meet the international green building standards for water, energy and construction materials, ensuring lower operation costs and a lower carbon impact.

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Sustainable finance is increasingly becoming a key focus for domestic financial institutions in Kenya.

Stanbic Bank Kenya Limited and SBG Securities Limited’s strategic roles as Lead Arranger and Placing Agent of the first ever green bond in the country is a proud moment for domestic financing institutions.

This pioneering yet innovative capital raise will also see a major shift in the Real Estate sector in the region.

The Acorn bond will be the first project bond in the Real Estate sector, introducing depth in the real estate offtake market yet providing a secure platform for real estate investors.

With the notes priced at a fixed coupon rate, the subscription book was well diversified with significant interest from Kenyan domestic pension funds, commercial banks, insurance/reinsurance companies and non-resident funds.

It marks a sign of good things to come. It was transaction of many firsts: it was the first senior secured bond in Kenya and the first bond to be rated by Moody’s in East Africa, rated as ‘B1’ which is a notch above the Kenyan Government.

It was also the first bond in Kenya to be approved as a Restricted Public Offer by the Capital Markets Authority (CMA).

Using the debt capital markets, through Green Bonds, to finance the low-carbon transition provides Kenya’s domestic financial institutions with financial products to enable their clients to invest in forward-looking environmental technology.

The writer is Head of Investment Banking, Stanbic.

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