By Rachel Savage, Marc Jones and Isla Binnie
LONDON/NEW YORK (Reuters) – Gabon has delayed a bond buyback that will kick off a $500 million ‘debt-for-nature’ swap, Africa’s first with international sovereign bonds, according to two sources with knowledge of the deal who blamed a spike in Treasury yields that sparked market volatility.
The tender to buy back a portion of three of the central African country’s ‘Eurobonds’ and swap them for a new $500 million eco-friendly ‘blue bond’ was expected to close on August 10, according to a London Stock Exchange regulatory filing.
Now the transaction is expected to be priced on August 7 and to close on August 15, one of the sources said, citing market conditions. Fitch downgraded the United States’ credit rating to “AA+” on Tuesday, pushing U.S. Treasury yields higher.
The prices of Gabon’s 2025 and two 2031 Eurobonds have fallen to near the levels they were being traded at when the tender was announced.
A Gabon government official and Bank of America, which is arranging the deal, declined to comment.
The new “blue” bond – so called because some of the money goes towards ocean conservation – is intended to lower the interest rate Gabon is paying and generate significant savings over the next 15 years.
Gabon’s beaches and coastal waters host about a third of the world’s endangered leatherback turtles, the largest global population.
At their simplest, debt-for-nature swaps see a country’s debt bought up by a bank or specialist investor and replaced with cheaper debt, usually with a multilateral development bank “credit guarantee” or “risk insurance”. The savings are intended to be used to fund conservation.
The U.S. International Development Finance Corporation (DFC) is providing political risk insurance for the deal, as it did in Ecuador’s record $1.6 billion swap to preserve the Galapagos Islands in May and another recent deal in Belize.
The insurance is meant to be key in bringing down the borrowing cost. The new “blue bond” is being rated “Aa2” by credit ratings agency Moody’s, well above the “Caa1” rating it normally gives Gabon’s debt.
Moody’s cited the DFC insurance as a factor in this higher rating. DFC declined to comment on the deal delay.
(Reporting by Rachel Savage, Marc Jones and Isla Binnie, Editing by Nick Zieminski)
