The $100 million Plastic Waste Reduction-Linked Bond, which is principal-protected, has a seven-year maturity period and is priced by the World Bank (International Bank for Reconstruction and Development, or IBRD). With this novel bond, investors receive a financial return that is correlated with the Voluntary Carbon Units (carbon credits) and Plastic Waste Collection Credits (plastic credits) that are anticipated to be produced by two projects.
The chosen projects in Ghana and Indonesia seek to stop plastics from leaking into the environment and oceans by reducing and recycling plastic waste in communities that are at risk. For this transaction, Citi served as the lead manager.
This groundbreaking outcome bond raises private capital to fund projects with positive climate and development impacts, as measured by the generation of plastic and carbon credits on the Verra Registry. Investors are providing approximately $14 million in up-front financing for the projects, which include increasing capacity at existing facilities, expanding to new collection and recycling sites, and installing food-grade recycling equipment.
In addition to reducing plastic pollution, the projects improve local pollution and air quality, mitigate health risks, and create jobs in underserved communities. The innovative use of plastic credits in this transaction creates a completely new way of financing plastic collection and recycling operations while also preventing plastic waste from leaking into the ocean.
The bond is 100% principal protected, with proceeds of $100 million going to support the World Bank’s global sustainable development activities. Ghana and Indonesia’s plastic collection and recycling projects are not World Bank projects. Investors in the bond will forego a portion of ordinary coupon payments, with the equivalent amounts being provided, via a hedge transaction with Citi, to support the financing of projects chosen by Plastic Collective UK, which manages the projects’ plastic and carbon credit programmes.
In exchange, the investors will receive annual coupons consisting of a fixed amount plus payments tied to the sale of a portion of the plastic and carbon credits produced by the projects.
If Plastic Collective UK’s plastic and carbon credit monetization projects and operations go as planned, investors could benefit monetarily from the bond in comparison to standard World Bank bonds with a comparable maturity.
Details of the transaction
| Issuer | IBRD |
| Size | USD 100,000,000 |
| Settlement Date | January 31, 2024 |
| Maturity Date | January 31, 2031 |
| Issue Price | 100 per cent of the Aggregate Nominal Amount |
| Interest Amount | Fixed Interest Amount + VCU Linked Interest Amount + Plastic Credits Linked Interest Amount + Shortfall Catch-Up Amount (if any |
| Fixed Interest Amount | 1.75 percent per Specified Denomination |
| Plastic Credits Linked Interest Amount | An amount linked to the number of Plastic Credits issued from the projects, subject to a cumulative ceiling of $19,468.25 per Specified Denomination |
| VCU Linked Interest Amount | An amount linked to the number of VCUs issued from the projects, subject to a cumulative ceiling of $532.99 per Specified Denomination |
| Redemption Amount | Redemption at Par + Additional Redemption Amount |
| Additional Redemption Amount | An amount representing a share of outperformance by Plastic Collective UK in sales of Plastic Credits |
| Listing | Luxembourg Stock Exchange |
