Hapag-Lloyd joins shipping industry to switch to green finance
Hapag-Lloyd has become the latest company in the shipping industry to turn to “green finance” for future growth. Increasingly, the shipping industry is turning to this innovative form of financing which links the terms of financing to the company’s ability to meet measurable sustainability goals.
“Our first green financing is a major step for us, as we are innovating in the container transport segment by financing new construction projects focused on sustainability. The transactions will help us modernize our fleet while further reducing our CO2 footprint at the same time, ”said Mark Frese, CFO of Hapag-Lloyd.
Hapag said it entered into a syndicated green loan of $ 417 million with a maturity of 12 years. It will be used to finance three of the six 23,500 TEU container ships ordered by the company in December 2020. The credit facility is backed by the Korea Trade Insurance Corporation (K-SURE) and the syndicate is made up of 11 banks. An additional $ 472 million to finance the other three ships on the order was raised through a structured leasing agreement by the Industrial and Commercial Bank of China Leasing (ICBC Leasing).
Both debt transactions adhere to the Green Lending Principles of the Loan Market Association and DNV GL acted as an independent expert providing the second party opinion used for verification under the green financing terms. Hapag said the extremely fuel-efficient high-pressure dual-fuel engines of the new ships would be able to reduce CO2 emissions by around 15-25%, which would allow the basis of the conditions to meet the requirements of the green loan principles. .
The concept of sustainability loans has been used by other industries, but is now gaining momentum in shipping as the industry strives to meet international targets to reduce its environmental impact. Last week, Japan’s NYK announced it had entered into a $ 50 million sustainability loan, the first in Japan denominated in a foreign currency. NYK previously entered into a yen-denominated sustainability loan in November 2019. Both loans are linked to the sustainability score NYK receives from the Carbon Disclosure Project (CDP), an international non-profit organization that reports on the performance of the company.
By expanding the more ubiquitous sustainable lending, Norwegian oil operator Odfjell became the first shipping company to complete a sustainability bond offering. In January 2021, the company raised $ 100 million in an oversubscribed offer linked to its efforts to reduce greenhouse gas emissions. Seaspan followed with its own unsecured sustainability obligations. They raised $ 200 million in the Nordic bond market by paying 6.5% interest on bonds that will mature in February 2024.
What makes these financings unique and arouses the interest of green investors is that the financial or structural characteristics vary depending on the achievement of the selected sustainability performance objectives. For example, the interest rate may be adjusted based on the ability to meet goals, while other conditions may include a margin adjustment, a coupon adjustment, or an adjustment to the repayment amount.
The structure is well suited to industries that have a significant environmental impact. Companies that can meet their goals are rewarded while green investors see the structure as encouraging and accelerating environmental efforts with penalties for issuers who do not pursue environmental programs and provide verifiable results to meet their sustainability goals.