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[Top Story] Barloworld’s gender-linked bond joins the JSE’s Sustainability Segment

SIMON BROWN:  I’m chatting now with Valdene Reddy, director of Capital Markets at the JSE. Valdene, I always appreciate your early mornings.

I want to touch on gender-linked bonds. Before we get to that, you launched the Sustainability Segment on the JSE back in June 2020, just over two tears ago, Give us a bit of insight around what it is and how it’s done in the two years it has been operating.

VALDENE REDDY: Good morning, Simon. Yes, the JSE launched this segment, as you said, in June 2020. It was with the aim of providing a platform for companies to raise green finance, social finance and other sustainability initiatives. The segment really makes it simpler and easier to list and trade sustainability-related instruments which, as we know, are really of interest to the investors right now. And, as you say, Covid was really elevated from a social perspective in South Africa and globally as well.

We’ve seen a massive increase in the segment, where investors [are showing] high demand in the segment.

SIMON BROWN:  I suppose at the core of the ESG –Environmental, Social and Governance – [goals] it’s social, but in many cases it’s going to be environmental and it’s going to governance. It’s at the heart of the trend towards ESG.

VALDENE REDDY: It’s covering all areas. The instrument provides social and environmental benefits. But if you encompass it all, it’s really a platform for companies and institutions to raise funds for activities related to sustainable development, wherever that gap fits, and it’s about transitioning South Africa in terms of a sustainable economy.

We saw interest in the green bonds when we first brought this to market earlier in 2017, and then we saw interest for sustainability or social-related instruments from the 2020 period as we extended that segment.

SIMON BROWN:  The theory goes if I issue a green bond I’m not going to go and build a coal mine, for example. I’m going to use it directly targeted so investors can be confident of where the money raised is being utilised by the businesses.

VALDENE REDDY: Absolutely. The framework of these bonds, without getting into the technical detail, helps investors measure how the funding will go towards sustainability initiatives.

SIMON BROWN:  We’ve just seen Barloworld issuing two-year, three-year and five-year gender-linked bonds, looking to raise over R1 billion from that capital raise. How would something like a gender-linked bond work?

VALDENE REDDY:  This was the first-ever gender-linked bond. So it’s really, really awesome, and this instrument aims to create gender diversity. So it was targeted at participation of women-owned businesses in the economy through its supply chain. So it was really cool and innovative from Barloworld – the first ever that we saw. It’s really trying to address some of the legacy issues in terms of the gender imbalance, and is working towards better transformation so that [it] can have better participation by women in its leadership structure and supply chain.

SIMON BROWN: I take your point on that. It is completely different. Some people are probably raising eyebrows, but we need to make changes and this is going to be one of the ways to do it. But I’m not sure if you are even able to answer the question. If you are doing a gender-linked bond, or a green bond, or a social bond, do you potentially get a better rate for it because you are into ESG, that sort of social-awareness space?

VALDENE REDDY: It’s interesting. People often wonder if these would actually come at a discount compared to other competitive rates. But we’ve been tracking some of the rates in terms of what any of these bonds – obviously, each bond is different in term and tenor, etc – but some of these bonds are, firstly, over-subscribed. That it shows that they are in high demand from investors. But that have fairly decent returns across the board and we’ve had quite issues with 40 bonds in the Sustainability [Segment] to date. On average we are looking at 6.5%, but some of them went as high as 9.5%, some even 10%. So there are still decent returns in this segment.

SIMON BROWN:  Okay, so there is proper money [to be made]. It comes back to the point that we can make money and we can do good at the same time. It doesn’t need to be an either/or, which I think a lot of people think it is.

Valdene Reddy, director at capital markets at the JSE, I always appreciate your early morning insights.

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