Deutsche Bank and Continuum Energy Levanter, a subsidiary of Continuum Green Energy (Continuum), have announced they have executed the world’s first green hedging transaction with a second party opinion based on a specially designed green hedge framework.
The two parties worked together to develop a green hedge framework to support the implementation of Continuum’s green bond framework. External reviewer, Cicero Green, issued the second party opinion on the green bond and the green hedge frameworks.
Green hedge structure
The foreign exchange (FX) hedge solution is for a 6 years tenor in US dollars/Indian rupees on notional of US$185m, linked to Continuum’s green bond US dollar primary issuance and based on their green bond framework.
“This hedge structure has the potential to set new standards for increased transparency and risk management particularly for emerging markets hard currency green bond issuances,” said Rahul Jain, head of Sustainable and Special Solutions Asia at Deutsche Bank. “With new green debt issuance in emerging markets continuing to grow, investors are increasingly looking for ways to distinguish well managed, quality green issuers from the rest. This solution sets a high water mark for disclosure and transparency for green bond investors. By adopting this green hedge framework, Continuum will increase transparency for investors by combining metrics and reporting of a project’s ESG impact as well as providing important reference points for financial risk management.”
Investing in ESG
Bond proceeds are used for renewable energy projects in India, which exposes the company to US dollars/Indian rupees FX risks. The green hedge framework provides a methodology for Continuum to risk manage their currency exposure while providing additional transparency for the green bond holders.
Deutsche Bank was the lead bookrunner and green structuring agent for Continuum’s 144A/RegS green bond, which priced in February 2021.
“This is a highly innovative and elegant financial risk management solution for our USD green bond where proceeds are invested in greenfield renewable energy projects in India,” commented Arvind Bansal, chief executive officer of Continuum Green Energy. “Our underlying green project revenues are generated in Indian rupee while the principal and interest are to be repaid in US dollar, giving rise to currency risks. The green hedge manages the currency exposure, ensuring the underlying green projects are financially sustainable, while ensuring investors receive their returns on the green bond.”
Sustainability is a core pillar in Deutsche Bank’s transformation strategy and the bank says it is committed to supporting clients as they transition for the zero carbon economy. Last year in Asia Pacific, Deutsche Bank structured Asia’s first currency hedge linked to sustainability key performance indicators. This hedge structure was assessed and approved against Deutsche Bank’s Sustainable Finance Framework.
“A key global priority today is to ensure that new investments in EM are increasingly ESG-compliant,” concluded Kamran Khan, head of ESG for Asia Pacific at Deutsche Bank. “This is because the bulk of new global investment in infrastructure, manufacturing and other industries is taking place in emerging markets. Deutsche Bank is committed to developing new, innovative financial products and services which incentivise the shift towards sustainability. We are particularly pleased with the unique Deutsche Bank signature on this transaction evident in the inclusion of sustainability reporting and the sophisticated financial structuring of the hedging solution linking with a green hedge framework.”