By Natasha White
A senior investment banker at Credit Suisse AG says his team is actively seeking new deals in a rapidly growing corner of ESG financing, even as the future of the unit after the takeover by UBS Group AG is in question.
The Swiss bank stands out as a pioneer in a corner of environmental, social and governance investment known as debt-for-nature swaps, a market that it has so far dominated. But this year’s near-collapse and government-engineered rescue by UBS Group means that businesses in the loss-making investment bank are now being taken under the microscope for their fit into the longer-term UBS strategy.
Ramzi Issa, global head of credit investor products structuring at Credit Suisse, says his team still wants to build out its debt-for-nature swap business after just concluding the largest ever such arrangement, a $656 million deal for Ecuador. In that transaction, Credit Suisse bought some of Ecuador’s bonds at a discount and swapped them for a new, smaller loan in exchange for commitments from the country to protect its ocean life. Credit Suisse financed the deal by issuing new marine conservation-linked bonds.
Ecuador’s record deal follows a $150 million swap the Swiss bank sealed last year for Barbados, and a $364 million transaction for Belize in November 2021.
In all, Credit Suisse “has retired about $2.3 billion of debt and that’s been substituted with about $1.2 billion of new financing,” Issa said in an interview. “So that is a lot of impact just on the fiscal side. On the environmental side, we’re talking about $680 million of funding for ocean protection that just did not exist before.”
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“We are actively looking at other transactions,” Issa said. “I’m very optimistic.”
A spokesperson for UBS didn’t immediately reply to a request for comment.
UBS has made clear that it intends to wind down much of Credit Suisse’s investment bank and will screen the remaining staff for their fit with its more stringent risk culture. As the future of many bankers working at Credit Suisse is in doubt until the deal closes in the next few weeks, other banks have taken the opportunity to snap up experienced staff. Competitors are also seeking to get into the business of debt-for-nature swaps.
Bank of America is set to arrange a $500 million swap deal for Gabon in the coming months. Deutsche Bank AG has also expressed interest in the market, as banks across Europe and the US vie for a role in such deals.
The crisis engulfing Credit Suisse has led a number of its ESG bankers to leave the firm, with some following in the footsteps of Marisa Drew, who quit her role as chief sustainability officer at the Swiss Bank last year to take on an equivalent role at Standard Chartered Plc. Drew recently told Bloomberg she’s keen to build out the StanChart ESG team, including through investments in biodiversity expertise.
The field plays a “critical role” in “protecting the world’s natural capital,” she said earlier this month.
Issa says he’s keen to expand into more land-based deals, after having arranged a string of marine conservation swaps.
Meanwhile, the list of countries expressing interest in debt-for-nature swaps is growing. Suriname and Sri Lanka are said to be exploring options. And representatives of Gambia, Colombia, Pakistan, Eswatini and Kenya have all expressed support for such financing arrangements.
“There’s obviously lots of opportunity,” said Rob Weary, an adviser on the Ecuador deal through his firm, Aqua Blue Investments. In theory, any country with sovereign debt trading at a discount, with valuable ecosystems, and with access to credit support from the developments banks involved in such deals could qualify, he said.
But nonprofits and even some financial analysts are starting to question the structures of debt-for-nature swaps, which now tend to be in the hands of private markets instead of being arranged through public or philanthropic financial structures, the norm over the past three decades or so.
Though designed to help impoverished nations reduce their debt burdens while protecting the environment, there’s concern that some of the bond labeling in such deals could be misleading. For example, analysts at Barclays Plc have questioned the blue bond tag attached to the Belize and Barbados swap arrangements, after establishing that not all the proceeds would go toward marine conservation. The bonds tied to Ecuador’s recent deal were instead labeled as “marine-conservation linked.”
Issa says the institutional investors putting money into such transactions have full transparency around the terms of the swaps. “We’re trying to be descriptive rather than fitting a specific label,” he said.
He also said his team, which sits on the markets side of Credit Suisse’s investing banking operations, is keen to continue developing and adapting the product as the market grows.
“As you are doing more transactions, if you’re doing the same thing over and over again, that’s probably not the right thing,” Issa said. “You’re learning and trying to make improvements as you go along.”