Jul 17, 2019 (China Knowledge) - Cofco International Ltd signed a USD 2.1 bln loan that links all of its main financing lines to environmental targets.
The deals marks the first time a Chinese company has engaged in the green financing agreement, which is known as a sustainability-linked loan. The loan comes at lower interest rates in exchange for meeting green targets, such as tracing the origins of its soybeans to ensure they do not contribute to any deforestation activities in Brazil.
This type of sustainability linked loan is a relatively new concept that barely existed just few years ago. It demonstrates how green finance is growing in popularity across the corporate world. Loans with margins tied to borrowers’ sustainability metrics crossed 60% in H1 2019 to USD 44 bln.
Cofco is estimating annual cost savings of about USD 1 mln by meeting its targets. The company is also planning to spend that money funding to reach its own sustainability goals, like reducing its use of fossil fuels.
The deals is ranked among the world's biggest sustainability linked loans and the largest in the commodity trading industry. This is also the first time a commodities trader tied its core source of trade financial capital to green targets. The usual industrial practice is to tie it to revolving credit and term-loan facilities.
Louis Dreyfus Co., Gunvor Group Ltd., Olam International and Wilmar International are some prominent traders which have all signed similar loans in the past two years.
The green loan is still relatively new, with its first deal struck two years ago in 2017. However, the demand’s surged ninefold in 2018. Currently, European companies dominate the space and attributed to 80% of the loans. Before the Cofco International loan, there were only three deals from Asia this year, totalling USD 1.2 bln.
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