Business Barbados - 2023 Edition

Barbados Blue Bonds and Climate Finance in the Caribbean lue bonds are a relatively new form of debt instrument issued to support investments in healthy oceans and “blue economies”. In September 2022, Barbados announced a blue bond facility of US$150 million. The structure is co-guaranteed by the global environmental organization The Nature Conservancy (“TNC”) for US$50 million and the Inter-American Development Bank for the remaining US$100 million. This dual-currency blended finance deal was arranged jointly by CIBC FirstCaribbean and Credit Suisse and includes the following key features: 1. an extension of the debt profile to 2037 2. US$50 million toward marine conservation 3. capitalization of an endowment to fund marine conservation with the aim to protect 30% of Barbados’ ocean 4. inclusion of a climate clause in the case of a natural disaster, that would permit the deferral of debt payments for two years 5. a unique ‘pandemic clause’ to allow the government to defer debt payments (for up to two years at a time and twice if necessary), in the event of another global pandemic like COVID-19. Barbados is not the first Caribbean country to issue a blue bond. In November 2021 Belize issued a blue bond which represented the world’s largest debt restructuring for marine conservation with a sum of US$553 million, reduction in total debt by US$250 million, and debt service savings of approximately US$200 million. This external commercial debt was refinanced and replaced with a $364 million loan financed by Credit Suisse and the US International Finance Development Corporation in conjunction with TNC. The key transaction components were similar to the Barbados blue loan with the exception of the pandemic clause. While debt restructuring for nature conservation and climate adaptation is not new, it plays a significant role in the Caribbean, where economies face similar challenges including: — vulnerability to the impacts of climate change such as rising sea levels, biodiversity erosion, and more frequent extreme weather events such hurricanes and tropical storms — economic dependency on tourism and maritime trades, such as fishing — high cost of international trade due to transport costs and high dependency on foreign imports — limited access to reduced interest rates from international finance institutions due to use of gross national income (GNI) metrics The multidimensional challenges faced by Caribbean nations are exacerbated by Chris Brome Partner, Deal Advisory, KPMG Grant McDonald Country Managing Partner, KPMG B B A R B A D O S B L U E B O N D S 43 BUSINESS BARBADOS 2023