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IBRD

$100mn Plastic Waste Reduction-Linked Bond

4th World Bank Outcome Bond: $100mn 7-year Plastic Waste Reduction-Linked Bond

The Client

The World Bank (International Bank for Reconstruction and Development, IBRD) is a global development cooperative owned by 189 member countries. As the largest development bank in the world, it supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries, as well as by coordinating responses to regional and global challenges. The IBRD works closely with all institutions of the World Bank Group and the public and private sectors in developing countries to reduce poverty and build shared prosperity.

The Challenge

~70% of the nearly 350 million tons of plastics that are produced annually end up in managed landfills or are incinerated, about 10% is recycled and the remaining 20% escape into the environment. Plastic leakage into nature and oceans is most extreme in Africa and Non-OECD Asia territories such as Indonesia and predicted to double in the next 40 years (OECD Data) where interventions to increase plastic collection and recycling activities is most needed.

The Solution

On 24th January 2024, the IBRD priced a 7-year $100 million, principal-protected Plastic Waste Reduction-Linked Bond. Citi acted as sole structurer, sole bookrunner and Voluntary Carbon Credits off-taker on the transaction.

Bond Summary

  • 100% principal-protected bond whose proceeds go towards the World Bank’s sustainable development activities in accordance with IBRD’s Sustainable Development Bond Framework.
  • Investors in the bond will forego a portion of ordinary coupon payments (approximately $14mn), with the equivalent amounts instead being provided, through a hedge transaction with Citi, to support the financing of two plastic waste recycling and plastic waste collection projects in Ghana and Indonesia.
  • The projects are selected by Plastic Collective, a private limited company incorporated in the UK and founded to address the problem of mismanaged plastic waste that leaks into oceans and nature and goes unrecycled into landfill and incineration. Plastic Collective is the off-taker of the Plastic Credits generated by the projects and Citi is the off-taker of the Voluntary Carbon Credits generated by the project.
  • In return, the investors will receive annual coupons composed of a fixed amount plus payments linked to the issuance of a portion of the Plastic Credits and Voluntary Carbon Credits produced by the projects (issued on the Verra Registry).
  • In addition to returning the $100mn principal to investors at maturity, the bond offers investors a potential financial benefit compared to regular World Bank bonds of similar maturity, if the projects and monetization of plastic and carbon credits by Plastic Collective UK perform above expectation.
  • The market risk will be taken by Plastic Collective for the Plastic Credits and by Citi for the Voluntary Carbon Credits.
  • In addition to reducing waste plastic pollution, the projects create improvements in local pollution and air quality, reduce associated health impacts and create jobs with enhanced welfare standards in often overlooked and marginalized communities. The innovative use of plastic credits in this transaction introduces an entirely new way of financing plastic collection and recycling operations as well as preventing plastic waste from leaking into the ocean.

The Result

  • This bond was fully subscribed by leading global investors. The new Plastic Waste Reduction-Linked Bond solves the timing mismatch problem by channelling up-front financing from capital market investors looking to support plastic waste collection and recycling activities.
  • “Outcome bonds, like the Plastic Waste Reduction-Linked Bond align incentives, so that investors benefit financially when positive development outcomes are achieved. They create a win-win with the local communities and ecosystems that benefit from less pollution, and we will continue issuing them“ – Anshula Kant, World Bank CFO.
  • This new bond is emblematic of the strong partnerships that are needed, particularly between investors, governments, financial institutions, and local delivery partners to achieve the Sustainable Development Goals (SDGs), including efforts to reduce plastics waste” – Jorge Familiar, World Bank Vice President and Treasurer.