JSE-listed Netcare, which operates a network of hospitals and other healthcare services in South Africa and Lesotho, has launched Africa’s first sustainability-linked bond, in partnership with Standard Bank.
The coupon rate of these bonds is linked to the issuer’s achievement of certain pre-agreed sustainability performance targets. In Netcare’s case, the group aims to reduce its energy consumption, procure more renewable energy, reduce total carbon emissions, and further improve its water efficiency, partly by increasing its capacity to recycle grey water. In addition, Netcare is developing systems to ultimately convert all infectious healthcare risk waste (HCRW) produced on-site to inert products and achieve zero waste to landfill for waste, outside the HCRW stream, by 2030.
Dr Richard Friedland, Chief Executive Officer of Netcare says, “Our comprehensive environmental sustainability strategy developed in 2013 is firmly on track to meet our 10-year goals and targets. Netcare is delighted to be part of a global community of healthcare institutions leading the transformation to climate-smart healthcare, and this innovative sustainability-linked bond will further assist us in achieving our longer term goals”.
On 16 March 2021 Netcare, with Standard Bank acting as Sole Arranger and Sustainability Agent, executed on the continent’s debut sustainability-linked bond (NTCG01). The bond will be listed on the interest rate market of the JSE on the 19th of March. Netcare raised a ZAR1 billion, 3-year, unsecured note priced at 5.4% (3 Month Jibar +175bps). If Netcare achieves its climate change mitigation and water efficiency targets linked to the bond, it will benefit from a step down in the coupon rate.
Carl Wiesner, Debt Capital Market Transactor at Standard Bank says, “Through the offering of the sustainability-linked bond, Netcare was able to access a deeper pool of liquidity at a compressed upfront pricing level, with the added incentive of a quantifiable future pricing benefit while investors are able to encourage positive forward looking sustainable corporate behaviour. The large level of interest the market has expressed for this transaction demonstrates the increasing importance of ESG driven investments in both the international and local capital markets”.
Netcare has already made significant progress with its sustainability programme. As of 2020, the company has solarinstallations capable of generating more than 20GWh of renewable energy, and had achieved a 24% reduction in energy intensity per bed since 2013 against a goal of 22% by 2023. In 2020, scope 1 and 2 carbon dioxide emissions reduced by 37% from 2013.
The progress that Netcare has made towards being a leader in environmental sustainability within the healthcare sector in South Africa, and the world, was recognised when the company achieved the distinction of being the only healthcare institution globally to have received gold awards – the highest accolade – in each of the four categories in the international 2020 Health Care Climate Challenge Awards organised by Global Green and Healthy Hospitals (GGHH). The awards were for Greenhouse Gas Reduction [Energy], Renewable Energy, Climate Resilience and Climate Leadership.
The company was also awarded the prestigious Association of Energy Engineers (AEE) Sub Sahara African Corporate Company of the Year award in 2019, a global recognition across all industries.
Nigel Beck, Global Head Sustainable Finance at Standard Bank says, “Over the course of the last 12 months Standard Bank has been working closely with Netcare and institutional investors on a sustainability-linked product offering, advising on meaningful sustainability performance targets aligned to Netcare’s corporate strategy. We are encouraged by the overwhelming level of interest and demand the market has expressed for sustainable product offerings which was evidenced by the extent to which the bond was oversubscribed”.
Along with other instruments, such as sustainability-linked loans, green bonds and social bonds, demand for sustainable finance solutions is rising fast in Africa.
Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate. Investor demand is partly being driven by the recognition that companies that operate in a sustainable manner tend to have lower risk profiles and outperform over the long term.