IDC and PIC team up in R5bn green bond

The Industrial Development Corporation (IDC) has raised R5bn from the Public Investment Corporation (PIC) to fund businesses pursuing opportunities in the development of clean energy infrastructure.

The PIC funding is styled as a private an unlisted privately placed paper called green bond. This will enable the IDC to dive further into the green energy space having already made some significant investment into the exploding sector.

Seeking to maximise potential economic benefits in South Africa’s transition towards a low carbon economy, the IDC has earmarked about R25bn over the next five-years to 2016 for the development of green industries within the country. Funding to eligible projects will be disbursed by the IDC’s Green Sector Business Unit (SBU).

IDC CEO Geoffrey Qhena said “Last year, IDC committed R5.2 billion to consortia awarded successful bid status in the Department of Energy’s Renewable Energy Procurement Program (REPP)’s first round of bidding. In the second bidding round, the IDC further committed R2.3 billion to seven projects awarded successful bid status “. Nedbank Capital and Basis Points Capital were the joint lead arranger and manager for the bond.

According to the Integrated Resource Plan (IRP 2010), the South African government envisages that renewable energy will contribute 42% of the total generation capacity by 2030.

Research conducted by the IDC in 2011 shows that South Africa’s investment in technologies and infrastructure that enhance environmental protection and support the reduction in carbon emissions could potentially create add more jobs to the economy. “IDC continues to look for more innovative ways of raising funds which we in turn pass on to job creating businesses. Therefore, this partnership that we have just announced with the PIC is very much in line with our strategy,” says IDC CEO, Geoffrey Qhena. Given the job creation potential, Qhena adds that the pipeline for clean energy infrastructural investments over the next five years to 2015/16 was encouraging to South Africa’s job creation prospects.

Explaining the significance of the Green Bond,Dan Matjila, the PIC’s Chief Investment officer says this partnership with the IDC represents an important milestone in the implementation of the Development Investment policy (DI) of the Government Employee Pension Fund (GEPF) on whose behalf the PIC invests. “The DI policy seeks to invest in renewable energy projects and other infrastructural projects that make a good investment sense while contributing to SA’s developmental agenda,” says Matjila. As part of the private placement, the IDC and PIC will also collaborate and co-invest in projects some of which aim to encourage and promote investments in both energy efficiency and renewable energy.

The bond will be issued in tranches depending on the project pipeline and uptake with R500m earmarked as the initial tranche. According to the deal, the tenure of the bond is 14 years.

GEPF’s Principal Officer John Oliphant said GEPF’s investment in the IDC’s Green Bond will help transition of the local economy from ‘brown’ to ‘green’ ultimately resulting in creation of job opportunities.

“As a universal investor with exposure to critical sectors of the local economy, sustainable energy supply is very important to us as a lack thereof negatively impacts the economy and our investment portfolio,” adds Oliphant.

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