YEN DENOMINATED GREEN BONDS

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Context: REC Limited, a Maharatna Central Public Sector Enterprise under the Ministry of Power, has successfully issued its inaugural Japanese Yen (JPY) 61.1 billion 5-year, 5.25-year, and 10-year Green bonds. This issuance is a part of its US$ 10 billion Global Medium Term Notes Programme.

Details

• REC Limited, a Maharatna Central Public Sector Enterprise under the Ministry of Power, issued its first Japanese Yen (JPY) Green Bonds totalling JPY 61.1 billion.
• The bonds, with maturities of 5 years, 5.25 years, and 10 years, were issued under the US$ 10 billion Global Medium Term Notes Programme.

Green Bonds ●Green bonds are financial instruments designed to raise capital specifically for projects that have positive environmental and/or climate benefits. ●They have emerged as a powerful tool for promoting sustainable development and combating climate change by attracting investments from environmentally conscious investors. ●Green bonds function similarly to regular bonds, offering fixed or variable interest rates to investors. However, the key difference lies in the use of proceeds. ●Funds raised through green bonds must be channelled towards projects with clearly defined environmental benefits, such as renewable energy, energy efficiency, pollution prevention, sustainable agriculture, water management, and green infrastructure.

Utilization of Proceeds

• The funds raised through the bond issuance will be directed towards financing Eligible Green Projects. This aligns with REC Limited's Green Finance Framework, RBI’s External Commercial Borrowings Guidelines, and regulatory approvals.

Key Transaction Features

• REC Limited's eleventh venture into the international bond market and the first-ever Yen Bond issuance by an Indian PSU.
• Bonds were issued at yields of 1.76%, 1.79%, and 2.20% for the 5-year, 5.25-year, and 10-year periods, respectively.
• This issuance marked the largest Euro-Yen issuance in South and South East Asia.
• It is the largest Yen-denominated issuance from India and the largest non-sovereign Yen-denominated issuance from South and Southeast Asia.

Credit Ratings and Listing

• The bonds will be rated Baa3/BBB–/BBB+ by Moody's, Fitch, and JCR, respectively.
• They will be exclusively listed on the Global Securities Market of India International Exchange (India INX) and NSE IFSC in GIFT City, Gujarat.

About REC Limited ●REC is a 'Maharatna' company under the Ministry of Power, involved in financing power infrastructure, renewable energy, and non-power infrastructure projects. ●It is registered with RBI as a Non-Banking Finance Company (NBFC), Public Financial Institution (PFI), and Infrastructure Financing Company (IFC). ●REC Ltd. plays a strategic role in government schemes, including Pradhan Mantri Sahaj Bijli Har Ghar Yojana (SAUBHAGAYA) and Deen Dayal Upadhaya Gram Jyoti Yojana (DDUGJY). ●REC Limited has been a nodal agency for various flagship government schemes, contributing to the strengthening of the last-mile distribution system, achieving 100% village electrification, and promoting household electrification in the country.

Conclusion

• The REC Limited's inaugural Yen Denominated Green Bonds not only represent a strategic financial move for the company but also contribute to sustainable development and India's energy transition. The successful issuance reflects REC’s global standing and commitment to financing environmentally friendly projects.

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GREEN BONDS: https://www.iasgyan.in/daily-current-affairs/green-bonds-1

PRACTICE QUESTION Q. What is the primary purpose of Green Bonds in the financial market, and how do they support environmentally friendly initiatives? Provide examples of projects typically financed through Green Bonds, and how are they differentiated from traditional bonds?