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RMB acted as sole arranger and sustainability agent

Investment & Finance

RMB arranges the first African sustainability-linked bond for an SOE

Sustainability-linked bonds seek to integrate a company’s financial and sustainability performance.

Leading South Africa finance institution, Rand Merchant Bank (RMB), through its Debt Capital Markets and Sustainable Finance and ESG Advisory teams has arranged a R1.2bn in sustainability-linked bond for South African water utility Rand Water. 

The bond also marks several African firsts, including becoming the largest South African rand denominated sustainability bond issued and the first-ever to an African State-Owned Company (SOC). 

The remainder of the issuance was a R500m 10-year bullet bond, taking the total finance raised for Rand Water to R1.7bn.

Commenting on the developments, RMB’s Head of Sustainable Finance and ESG Advisory, Nigel Beck, said; “As companies across a range of sectors increasingly look to access the environmental, social and governance (ESG) debt markets, we are seeing corresponding demand from investors to put their capital to work in investments tied to ESG. Proceeds of the bond will be used to fund Rand Water’s efforts to translate the UN Sustainable Development Goals (UN SDGs) into concrete, measurable actions.”

Sustainability-linked bonds seek to integrate a company’s financial and sustainability performance. The coupon of the sustainability-linked bond is downwardly adjusted and linked to the achievement by Rand Water of ESG targets, including additional installed solar energy capacity, increased number of people with access to safe and clean water and greater female representation at senior management level.

Rand Water says it is committed to strategically embedding sustainability in its operations and has a vision to become a socio-economic change agent.

“The objective of this bond is to enable Rand Water to align with the guiding principles of South Africa’s National Development Plan and the UN SDGs, specifically UNSDG 6 – Clean water and Sanitation. We are encouraged by the overwhelming level of interest and demand the market has expressed, evidenced by the extent to which the bond was oversubscribed,” said Lucky Ncobela,  Rand Water Group Treasurer.

RMB acted as sole arranger and sustainability agent. To meet its issuance and sustainability strategy, Rand Water needed a partner that understands the key role that debt markets can play in funding, and encouraging, companies that contribute to sustainability.

Beck further added that this capital raise was especially successful as it came at a time when the capital markets are considered ‘closed’ for the funding of SOCs. “It makes this an important milestone for the sector and for South African capital markets,” Beck said.

“The issuance of a 10-year instrument in the current market conditions represents an outcome that is yet to be seen in the sector since pre-pandemic issuance dynamics,” concluded Beck.

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