Gabon releases tender for Africa’s first ‘debt-for-nature swap’: What is it?

Gabon releases tender for Africa’s first 'debt-for-nature swap': What is it?


Gabon became the African nation to launch a debt-for-nature swap, on Tuesday (July 25) and plans to buy up at least $450 million of its government debt in exchange for an eco-friendly blue bond, reported Reuters. 

The debt-for-nature swaps have recently gained some popularity among conservation finance, particularly after Ecuador struck the biggest deal of its kind and refinanced $1.6 billion of its commercial debt. 

What are ‘debt-for-nature swaps’?

Debt-for-nature swap is when creditors provide debt relief for developing countries who commit to taking steps towards the conservation of the environment, like decarbonizing the economy, investing in climate-resilient infrastructure, or protecting biodiverse forests or reefs, according to the International Monetary Fund (IMF). 

These so-called swaps can be useful for countries that are most vulnerable to climate change and often unable to afford investment to strengthen climate change-related resilience. Typically, a country’s debt, bought up by banks or specialist investors is replaced with cheaper ones with the help of a multilateral development bank “credit guarantee” or “risk insurance”. 

Therefore, these debt-for-nature swaps free up fiscal resources for governments to improve resilience without triggering a fiscal crisis or sacrificing spending on other development priorities, said the IMF. 

The supporters of this concept, which was first ideated by the late “godfather of biodiversity,” Thomas Lovejoy, in the 1980s call it a win-win for financiers, countries and conservationists, as per media reports.

The central African nation’s beaches and coastal waters are home to nearly a third of the global population and the world’s largest population of leatherback turtles, an endangered species. 

Citing a regulatory filing, Reuters reported that Gabon on the London Stock Exchange had “launched invitations to tender for purchase by the Republic for cash its 2025 Notes and 2031 Notes”. 

The filing has since prompted the three Eurobonds that it referred to rise as much as 2.2 cents on the dollar, reported the news agency. Furthermore, the February 2031 maturity rose 2.203 cents to 83.702 cents and the November 2031 maturity jumped 2.129 cents to 83.573 cents. 

While the Gabonese government offered to buy back the bonds for 85 cents per $1 of the bond. Meanwhile, the 2025 maturity rose 1.194 cents to 95.4 cents is also lower than the offer price of 96.75 cents.

A report by Reuters citing industry sources also said that the United States International Development Finance Corporation (DFC) would provide political risk insurance like it has for Ecuador and Belize.

Earlier this year, Ecuador sealed the world’s largest debt-for-nature swap on record amounting to $1.6 billion which has freed up as much as $18 million every year for the next two decades. The amount currently serves as a consistent revenue stream for the conservation of the Galapagos Islands, one of the world’s most precious ecosystems.

(With inputs from agencies) 


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