Green, social and sustainability (GSS) loan of the year - Cofco International
Cofco International's $2.3 billion sustainability-linked loan facility was the largest sustainability-linked loan arranged by a commodity trader and the first ever arranged by a Chinese corporate.
Borrower: Cofco International
Sustainability coordinators: ING Bank, BBVA, Rabobank
Coordinator and documentation agent: ABN Amro
Senior bookrunning mandated lead arrangers: ABN Amro, Agricultural Bank of China, ANZ, BBVA, China Construction Bank, China Development Bank, Industrial and Commercial Bank of China, ING Bank, Natixis, Oversea-Chinese Banking Corporation
Other lenders: Bank of America, Commonwealth Bank of Australia, Rabobank, Crédit Agricole CIB, DBS Bank, HSBC, MUFG, Société Générale, Standard Chartered, Sumitomo Mitsui Banking Corporation, Westpac
Legal counsel: Clifford Chance
Amount: $2.3 billion
Signing date: 16 July 2019
The overseas agriculture business platform of Cofco Corporation, China's largest food and agriculture company, operates in the global grains, oilseeds, sugar, coffee and cotton supply chains, with assets across the Americas, Europe and Asia-Pacific.
In 2018, Cofco handled more than 100 million tonnes of commodities, with revenues of $31 billion.
The company claims it is accelerating its growth "to create a world-class integrated global agriculture supply chain, anchored in China and competing globally".
Following an initial close and significant oversubscription of the initial amount of $2.1 billion, Cofco grew the facility to $2.3 billion, with 21 international banks participating in the transaction.
The facility refinanced existing term and revolving credit facilities (RCFs) that were due to mature later in 2019. The sustainability loan will be the company's core financing facility.
The financing comprises three tranches – a one-year RCF, a three-year RCF and a three-year term loan – each of which is tied to sustainability criteria. Cofco claimed it is the first time that a pricing grid linked to sustainability indicators applies to a one-year loan.
All three tranches of the deal are connected to a sustainability improvement mechanism, based on the Loan Market Association's Sustainability Linked Loan Principles.
The facility's interest rate is linked to the company's sustainability performance. Targets include:
- Year-on-year improvement of environmental, social and corporate governance (ESG) performance, assessed by research provider Sustainalytics, and;
- Increasing traceability of agriculture commodities, with a focus on directly sourced soy in Brazil, assessed by an independent inspector annually.
Depending on whether targets are met or not, the lenders may offer as much as a five basis point margin reduction.
The company placed the amount corresponding to the discount in an escrow account, which is designed to safely hold funds temporarily. If the company achieves the set targets, the company will have access to the funds.
Cofco has committed to exclusively use any earned discounts to invest in improving its performance across 'sustainable' supply, health and safety, environment, communities and upholding standards.
Traceability to origin is a prerequisite to building more sustainable supply chains, Cofco said. These targets are ambitious, given the size and practical constraints in a competitive market, requiring cooperation from governments, competitors and other third-party suppliers, it added.
Increased need for agricultural lands has led to deforestation in fragile ecosystems in Latin America, threatening vulnerable biomes like the Amazon and Cerrado in Brazil. With China being the largest destination market for soy, "it is in Cofco's direct interest to play a leadership role in combating deforestation and creating a sustainable supply base for generations to come," it said.
It will focus on increasing direct sourcing of soy in Brazil, expanding its Sustainable Soy Sourcing policy, by which it conducts risk assessments of more than 1.1 million hectares of farmland in Brazil using satellite mapping – with a view to increasing traceability over time, it said.