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Industry roundup: 20 January

US$700m green bond to fund Abu Dhabi solar project

TAQA, the international energy and water company also known as Abu Dhabi National Energy Company PJSC (TAQA) and listed on the Abu Dhabi Securities Exchange, together with Emirates Water and Electricity Company (EWEC) has priced green bonds worth US$700.8 million (€614.5m) to refinance the 1.2 gigawatts (GW) Noor Abu Dhabi solar project.

Noor Abu Dhabi is the world’s largest single-site solar photovoltaic (PV) plant and began commercial operations in April 2019, supplying green electricity to over 90,000 households in Abu Dhabi. TAQA owns a majority stake of 60% in the project and the remaining 40% are held by Japanese conglomerate Marubeni Corporation and China’s solar panel produce JinkoSolar. TAQA also has the 2-GW Al Dhafra Solar PV plant in Abu Dhabi, which is currently under construction and will supply more than 160,000 households upon completion.

Proceeds from the green bonds offering will be used to refinance project company Sweihan PV Power Company PJSC (SPPC), which oversees the construction and operation of the solar site.

TAQA said that with a coupon of 3.625% and maturity on 31 January 2049, the notes drew solid interest and were 1.8 times oversubscribed with the orderbook reaching US$1.26 billion in total. Citi, HSBC, Mitsubishi UFG, BNP Paribas, First Abu Dhabi Bank and SMBC Nikko acted as joint lead managers and bookrunners on the transaction.

“TAQA continues to deliver benchmark renewable energy projects with our investments underpinned by our strong balance sheet and our commitment to delivering shareholder value,” commented TAQA’s group chief executive Jasim Husain Thabet. “This bond attracted interest from international and environmental, social, and governance (ESG)-focused investors, further solidifying the confidence in TAQA based on our strong track record.

“Over the next 10 years, TAQA will continue to deliver on its objectives for sustainable growth and returns, with commitment to environment, social and governance standards as it seeks to become the ’recognised low-carbon power and water champion of Abu Dhabi’.”

Abdulla Al Kayoumi, chief executive of SPPC, added “Noor Abu Dhabi has helped set the benchmark for the UAE’s ambitions to build a green economy. Issuing the first long-term green bond in Abu Dhabi to refinance the project speaks to our ability to deliver renewable energy competitively and reliably and is a testament to our commitment to the economic growth and sustainable development of Abu Dhabi.”

In April 2021 TAQA announced its strategy to 2030, which is based on investing US$10.9 billion in infrastructure development as it targets the addition of 27 GW of power capacity and the expansion of its renewables portfolio. The company plans to expand its power-generation capacity in the UAE from 18 GW to 30 GW and boost its global generating capacity by 15 GW.

UK hosts second Africa Investment Conference

The UK today hosts the second Africa Investment Conference, which the government says aims to boost economic cooperation with African nations and enhance its role as the continent’s investment partner of choice for greener, climate-friendly projects.

The virtual one-day event, attended by UK and African ministers, business leaders and the World Trade Organisation (WTO) Director-General, opens with a video address by Prime Minister, Boris Johnson. It is accompanied by the government’s launch of the Growth Gateway tool to strengthen UK and African business relationships, following “record £2.3 billion support from UK Export Finance”.

UK Secretary of State for International Trade, Anne-Marie Trevelyan is hosting the event, which aims to unlock millions of pounds of new investment, especially in clean energy industries in both the UK and across Africa. In a ‘virtual fireside talk’ with WTO Director General Dr Ngozi Okonjo-Iweala, she will say sustainable trade and investment are crucial for reducing global inequality, improving economies, raising incomes and creating jobs.

Growth Gateway, which aims to enhance UK-Africa partnerships, is described as a digital tool to link African and British businesses to UK Government trade, finance and investment services and opportunities. The service provides practical online support to businesses in Africa that want to export to and invest in the UK, and businesses in the UK that want to export to and invest in Africa, backed up by a team of trade and investment specialists.

The initiative follows an increased effort across government to facilitate UK-Africa trade, including that of UK Export Finance (UKEF). The UK’s export credit agency has increased support for markets in Africa in the past year from approximately £600 million in 2018-19 to over £2.3 billion in 2020-21, supporting a range of infrastructure projects in countries from Côte d’Ivoire to Uganda.

BoA: UK CBDC would be a “rebundling” of money

Bank of America (BoA) has assessed the impact of a UK central bank digital currency (CBDC) – aka “Britcoin” – and challenged the Bank of England's (BOE) assertion that it would act just as a form of digital cash. BoA’s research paper Digital Money in the UK concludes that it would be more likely to replace chequing accounts as the way in which consumers hold most of their funds.

While the BOE regards a UK CBDC as fundamentally a substitute for cash, BoA comments: “Such a construct could [however] potentially be a 15x bigger amount replacing £440 billion ($598 billion) of current accounts not just £30 billion in cash.”

Last September the BOE set up two forums BOE to explore the key issues around a CBDC and has not yet decided whether to develop a digital pound, but indicated that any launch would be in the second half of this decade at the earliest.

As UK consumers typically hold only small amounts in cash, there would be greater convenience in switching a current account into Britcoins, BoA suggests, which could pose a threat to commercial banks. Chequing accounts, aka current accounts are central to UK commercial banks' business models, providing them with stable funding long term.

“This makes the BOE assumption that users would only substitute a digital sterling for their cash holdings a risky one for banks,” according to BoA, which cites concerns recently aired by the House of Lords Economic Affairs Committee in its report exploring a potential UK CBDC. That report suggested that it was inevitable that UK consumers would transfer money from their bank accounts into CBDC wallets.

BoA’s report concludes that Britcoin would represent a “rebundling” of money. Should consumers hold substantial amounts in a Britcoin wallet, banks could no longer rely on the stability or duration of current account deposits, nor be able to cross-sell products such as credit cards and mortgages as effectively as they do now. This could, potentially, even result in a restructuring of the institutional framework of finance.

The report also describes how holding money in a bank is safer than holding it in a non-bank as UK bank customers can access the Financial Services Compensation Scheme, which guarantees deposits up to a maximum £85,000, a resource that non-banks largely lack. However, should a non-bank provider offer a wallet that can store Britcoin, it would be at least as safe an option as a current account – and possibly more so, given that Britcoin would be central bank money.

“The BOE, in its analysis, ascribes fleeting reference to the potential move of transactional relationships out of banks,” comments BoA. “If these went to a third-party provider, we consider that the high value savings balances tied to current accounts would automatically become less stable for the bank as well.” Commercial banks would then risk losing both the funds and the relationship with their customers.

Deutsche Bank sees trouble ahead for tech stocks

Central bank policies have been a “big contributor to an incredible run” for tech stocks in recent years, but 2022 seems likely to mark “a perfect negative storm for tech” according to Deutsche Bank analysts.

Jim Reid, Deutsche Bank’s head of thematic research says in a research note that trouble has been brewing for technology stocks as the Federal Reserve aims to end the emergency accommodation introduced nearly two years ago in response to the onset of Covid-19.

The Fed now seeks to tighten its monetary policy and curb surging inflation, according to a Deutsche Bank note. Reid cites higher nominal and real yields as well as “a Fed that seems strongly committed” to introducing quantitative tightening in 2022.

To support his argument, Reid cites the FANG+ Index, which measures the stock performance of tech heavyweights such as Apple, Microsoft, Google parent Alphabet and Tesla, has tracked the size of major central banks’ balance sheets while benefiting from emergency monetary policy during the pandemic.

“Unless you are an incredibly strong advocate of a completely new earnings paradigm for the largest technology companies, that coincidently have tracked unconventional monetary policy, then it is hard to argue against the notion that central bank policies have been a big contributor to an incredible run for the sector over the last six to seven years,” Reid writes. “The only notable setback has been when global quantitative tightening arrived in 2018.”

The Fed has already signalled that 2022 may see it begin shrinking its balance sheet, which has swelled to around US$8.8 trillion as a result of its quantitative easing (QE) programme during the pandemic. Under quantitative tightening, the Fed’s balance sheet could fall about US$1.5 trillion by the end of 2023 and around US$3 trillion by 2025, according to the Deutsche note, which cited projections from the bank’s economists. 

At the same time the European Central Bank (ECB), the second biggest contributor to central bank assets charted in the Deutsche note, “will likely see the balance sheet fall by several hundred billion dollars this year,” Reid notes. 

A global market poll that the Bank conducted from 12-14 January found that 49% of respondents believed US tech shares are in a bubble. “Most of you think tech shares are currently in bubble territory, unless you’re younger than 34 years old,” the Deutsche Bank analyst team comments in the research note. Among that age group, “45% don’t think tech shares are in bubble territory but 40% agree that they are.” 

Investors appear to agree as the US stock market has retreated in the first weeks of 2022 in anticipation that the Fed will soon begin tightening its monetary policy in response to a US inflation rate of 7%, the highest in nearly 40 years. The FANG+ Index, which rose by about 18% in 2021, has since fallen back by around 5%.

ITFC signs Uzbekistan trade finance agreement

The International Islamic Trade Finance Corporation (ITFC) has signed a trade finance agreement with Uzbekistan’s Invest Finance Bank (InFinBank).

A press release stated that the US$15 million facility, which is the first trade finance facility that the ITFC has extended to InFinBank, aims to support the import and pre-export financing needs of its clients in Uzbekistan. In addition, the financing also endorses the Bank's quest to expand its Shari'ah Compliant trade finance offerings.

The partnership, signed by ITFC’s General Manager, Abdihamid Aweis Abu and InFinBank’s Chairman of the Board, Bobir Burkhanov, is implemented under the US$500 million Framework Agreement, signed between the Republic of Uzbekistan and ITFC.

Commenting on the agreement, Mr Abdihamid said: “This new partnership with InFinBank highlights our commitment to position the private sector at the heart of our work for the advancement of trade and post-Covid economic recovery of our member-countries. We look forward to building an impactful partnership with InFinBank that will help us contribute to the Uzbekistan growing economy. This is the first of many and we are poised to do more for the private sector as they hold the key to economic recovery”.

Since joining ITFC in 2019, Uzbekistan has received trade finance and development support across key sectors including agriculture, the private sector, and SMEs. The private sector clients and SMEs have been supported under 17 line of trade finance facilities totalling US$166 million.

In other trade finance news, the United Arab Emirates (UAE)-based trade financing platform, 360tf, reports that it has raised US$1.5 million in new funds five months after going live. The portal connects banks and businesses to manage their letters of credit financing needs.

“From chasing multiple banks and relentlessly following up for a single quote to availing real-time quotes from multiple banks after initiating a transaction, 360tf has completely reimagined trade finance,” said Nisarg Dugad, who co-founded the company with Capt. Sunil Saraf, Pankaj Mundra and its chief executive Vikram Lodha.

The promoters believe they can bring efficiency to a “largely offline, ad-hoc, and unstructured yet crucial piece of trade financing” and add that 360tf also brings benefits such as non-recourse financing, low single-digit interest rates, and “market confidence to high-risk countries”.

To date, the platform has overseen a gross transaction value of more than US$125 million and its user base has grown to more than 110 businesses. 360tf operates as “a scalable cloud-based platform that will leverage new technology in trade finance such as the tokenisation of trade assets for distribution to untapped non-bank liquidity sources”.

“We have brought down the turnaround time by more than 50%,” adds Lodha. “Our customers process more than 50 LCs a month and utilise our flat pricing structure. They have realized significant gains in terms of time, effort, cost-savings, and operational efficiency by using the platform.”

T. Rowe Price unveils equity and credit impact strategies

T. Rowe Price, the US$1.6 trillion global asset manager, has launched two impact strategies on its open-ended investment company (OEIC) platform.

A press release states that the T. Rowe Price Global Impact Equity Fund and T. Rowe Price Global Impact Credit Fund are designed to deliver a positive and measurable impact on the environment and society, alongside the prospect of alpha generation.

Managed by Hari Balkrishna, the T. Rowe Price Global Impact Equity Fund delivers performance through active investment decisions based on impact-oriented corporate engagement, active proxy voting, and building direct influence with management teams. The fund typically holds between 55 and 85 stocks from across the market capitalisation spectrum.

The T. Rowe Price Global Impact Credit Fund, managed by Matt Lawton, targets durable growing businesses with a clearly identified impact thesis. Credit selection is not limited to green bonds, the opportunity set spans across the corporate and credit universe identifying high impact-aligned issuers. Examples include renewable energy companies, not-for-profit hospitals, and development banks.

Both strategies target investments aligned to three key pillars: climate and resource impact, social equity and quality of life, and sustainable innovation and productivity.

Hari Balkrishna, portfolio manager of the T. Rowe Price Global Impact Equity Fund, says: “The investment industry has reached an exciting point where we can contribute to positive societal and environmental change, alongside a focus on financial performance. Being able to marry these goals together in a single strategy is an exciting step forward for us as investors, and we look forward to partnering with clients in our pursuit of positive impact at scale, on a truly global basis.”

Matt Lawton, portfolio manager of the T. Rowe Price Global Impact Credit Fund, comments: “Driving substantive progress in the fight against climate change will require entire sectors to transition. Fixed Income markets, and particularly corporate credit issuers, are playing a crucial role in addressing the world’s pressure points as they present a fertile ground of investment opportunities offering both compelling impact and performance potential.”

John Yule, Head of UK and Ireland at T. Rowe Price, adds: “ESG considerations continue to gain traction within the investment world – driven by societal, governmental, regulatory, and fiduciary demands. At T. Rowe Price, we have been building our responsible investing capability for several years, with ESG considerations now fully embedded within our investment processes. The expansion of our impact franchise is not only a natural extension of our continually evolving ESG efforts but also demonstrates our commitment to the UK market.”

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