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Green bond and Stanbic IBTC’s drive for renewable energy supply

Green Bond
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In recent times, there has been a renewed global focus on environmental sustainability. The focus examines the relationship between human society and the natural world. From the Greenpeace organisation in the early 70s to the more recent Kyoto Protocol and efforts by the Green House Protocol, the main attention has been on the effects of carbon dioxide emissions and the presence of greenhouse gases from energy resources. This attention underscores the impact of energy use on the socio-economic development of society. The Kyoto Protocol, for instance, was an agreement aimed at optimising the consumption of energy resources such as fossil fuel that tend to have the most negative impact on the environment.

Increasingly, as part of the commitment to a cleaner and sustainable environment, governments and organisations continue to seek and invest in newer and more environmentally-friendly energy sources such as wind, solar, biomass and hydro to power societal and business activities.

As part of the renewable energy drive, the Nigerian Electricity Regulatory Commission (NERC) stressed its commitment to stimulate investment in renewable energy generation in Nigeria. The Commission set itself a target to generate a minimum of 2,000MW of electricity from renewables by 2020, that is almost a half of the roughly 5,000MW of electricity currently generated. The National Energy Policy also reiterated the need to promote increased investments and development of the energy sector industries with substantial private sector participation.

To underscore the NERC and the energy policy thrust, a number of innovation-driven organizations are taking advantage to develop and introduce new technologies around renewable energy. A notable example is the MTN Lumos solar system.

These new disruptive technologies are changing the way that energy generation and distribution is understood and funded in Africa. These changes have profound implications, far beyond the energy sector. Thus, stakeholders in the energy sector in Nigeria, particularly financial institutions and investors, need to examine these changes and identify ways to restructure their approach to energy financing and management. “Renewable energy has the potential to build a more inclusive economic growth, where Africa’s extensive rural population is fully engaged in meaningful economic activity, and to transform the African developmental narrative,” says Yinka Sanni, chief executive officer at Stanbic IBTC Holdings PLC.

We have seen how new technologies are expanding access to energy beyond the cities and big towns. Small, easy-to-install, MTN Lumos home solar, for example, is making energy affordable to rural populations, and challenging financial institutions to come up with less costly – and digitally delivered – funding solutions.

Making renewables part of a diversified energy mix provides utilities a way of continuing to attract funding – by using new technologies to sustainably diversify their generation and supply networks, including off-grid and end-user funding elements. Standard Bank is working quickly across its 20 African markets, including in Nigeria through Stanbic IBTC, to understand the full implications and potential of these developments for African growth.

Recently, as part of its increasingly wide energy financing portfolio across Africa, Standard Bank, working in collaboration with its Nigerian subsidiary, Stanbic IBTC, announced the consummation of a key debt financing deal that saw the operators of the Shiroro Hydro-electric power station in the country, the North South Power Company Limited, raised over N8.50 billion from a green infrastructure bond, the first by a corporate in Nigeria. Shiroro Hydro is one of only three hydro-electric power stations currently operating in Nigeria and has an installed generation capacity of 600MW, out of the combined circa 2,000MW installed capacity of the three stations.

Stanbic IBTC and Standard Bank played a number of key roles leading up to the eventual success of the transaction. They were instrumental in positioning the credit narrative and driving the investor engagement process. The institutional investor community typically refrains from investing in Nigeria’s power sector due to an inadequate understanding of the industry dynamics, and the challenges currently associated with the industry. Identifying this scepticism and investor bias as a potential threat to the transaction, the deal team, led by Stanbic IBTC, arranged and facilitated an investor excursion to the power station of the company located in Niger State. Speaking on the excursion, Samuel Senbanjo of AIICO Pension Managers Limited, one of the institutional investors targeted, said “the visit helped me understand the asset and the transaction a bit better.” David Alao of Leadway Pensure PFA Limited, who was also part of the excursion, said: “Truly instructive, giving us plenty insight into North South Power. This singular action also makes the investment case for a relatively unknown company more credible.” The deal team also facilitated a meeting for the executives of the North South Power Company Limited with the National Pension Commission (“PenCom”), where a case was made to position the transaction as one in support of critical infrastructure development in the country.

Both initiatives ultimately proved instrumental as the visit to the power station helped to demystify the business operations of North South Power Company Limited and it gave investors the opportunity to witness firsthand the level of commitment and investment of NSP to power generation in Nigeria. The visit to the apex pension regulator also helped to garner much needed pension fund investor community support for the deal. Stanbic IBTC Bank also played the role of receiving bank on the transaction.

The 15-year debut green bond issue, the first tranche of a N50 billion issuance programme, is the first green bond issue in the country by a corporate. The facility, an accordion, is being underwritten by Stanbic IBTC Bank and Standard Bank while Stanbic IBTC Capital Limited will act as a joint Bookrunner. The green bond was certified by an external reviewer, TUV NORD CERT, to be in compliance with the Federal Government of Nigeria Green Bond Framework, and the Green Bond Principles issued by the International Capital Markets Association in June 2018.

Chief Executive, Stanbic IBTC Bank, Dr Demola Sogunle, while speaking on the deal, assured that the financial institution will continue to seek viable financing opportunity in renewable energy that will help open up the sector for growth. The good thing about all this change is that the generation and distribution of energy in the country will become less costly. Also, if supported by the right government policies, energy generation and distribution costs can be removed from government budgets. This will free up the national budget for the provision of essential services.

In today’s less predictable global environment, the funding of large long-term energy projects is seen as risky. In Nigeria too, perceived risk is a growing challenge, particularly when it comes to funding existing energy utilities and traditional large power generation and distribution projects. A case in point is the recent massive financing of Nigeria’s power sector reforms by financial institutions and the inability of energy sector firms to pay back, forcing banks to write down huge swaths of loan facilities as toxic.

It is clear that renewable energy is the future of energy consumption and Stanbic IBTC has shown a model of how financing can be structured for the benefit of all. However, financing may have to get even more flexible, going forward, as smaller, renewable, off grid solutions, supported by new storage capabilities offer sustainable alternatives to the large power providers that pose less risk to finance and have shorter and cheaper construction and delivery periods.

 

Joshua Obah
Joshua Obah, is a investment analysts based in Abuja

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