The New Development Bank Brics, the multilateral co-owned by the governments of Brazil, Russia, India, China and South Africa, is preparing to issue $350m worth of debut green bonds denominated in China’s currency, the renminbi.
Sources with direct access to the Shanghai-based development bank told Emerging Markets that a green bond would be issued in late April, with the first loans disbursed in early May.
One loan would be issued to each of the five sovereign owners of the NDB, with capital being channelled into a single green energy or green infrastructure project. “The first five loan tranches will be apportioned evenly between the five Brics countries,” said the source. “They want the first tranches to be as evenly distributed as possible.”
Developing countries from Latin America through to Africa and Asia are keen to push their green agendas: China’s next five year plan, from 2016-2020, aims to transition the People’s Republic to a low-carbon economy.
Now, there is a multilateral set up with the express intent to promote that agenda. “The great promise of the NDB is that it is launching directly into the sustainable infrastructure space, where it will lend directly to energy and infrastructure projects designed to have minimal impact on the environment,” said Kevin Gallagher, co-director of the Global Economic Governance Initiative at Boston University.
“It remains to be seen how the new institution will be scaled up and how oversight will work, but this is a great first step.”
He also pointed to the new multilateral’s aim of extending its founder members an equal say in how it is run, and to whom and how it lends. “Every Brics government has the same 20% share of the multilateral, so they all have the same level of say in how it is managed. Other development banks may be run by China or the United States, but this one is equally democratic.”
LOSING FAITH
In March, the NDB’s president, KV Kamath, a former chairman of Indian IT giant Infosys, said he was waiting for Chinese regulatory approval to sell around $1bn worth of long-term RMB denominated bonds.
The bank, which is rated AAA by two Chinese agencies but has no international ratings yet, informally says it plans to lend around $2bn in 2016, with likely targets expected to be new hydropower projects in Brazil and Russia, and a new green solar energy project in India.
The NDB has mooted lending to Brazil in real and to South Africa in rand due to the volatility of those two nations’ currencies.
The emergence of the first batch of loans, 21 months after the NDB’s launch, and four years after the development bank was first mooted, comes at a time when investors have all but lost faith in the notion of the Brics as a viable asset class. Russia and Brazil’s economies are in recession, while China, also troubled by slowing growth, is more interested in the Beijing-led Asian Infrastructure Investment Bank.
“The feeling is that the NDB has taken a back seat to the AIIB in China’s mind,” said Andrew Polk, director of China research at macro policy consultancy Medley Global Advisors. “It’s not dead — we can see that — but it doesn’t and it won’t have the same drive and viability that it once had.”