New BRICS Bank Plans Up To $384M Bond Issue In Yuan In Q2, Renewables Get Priority

New BRICS Bank Plans Up To $384M Bond Issue In Yuan In Q2, Renewables Get Priority

The New Development Bank set up by the five-member BRICS countries — Brazil, Russia, India, China and South Africa — plans an initial bond issue in yuan of up to $384 million US, with proceeds to be spent on projects in each member country.

The bond will be issued in China, likely in the second quarter, and the lender will give priority to renewable energy projects, bank Vice President Leslie Maasdorp told Russian news agency Tass on Wednesday.

BRICS is finalizing the exact size of the initial bond. It will be in the range of $353 million to $384 million, Maasdorp said, according to SeeNewRenewables.

Earlier in March, New Development Bank President K.V. Kamath said the newly opened institution was awaiting Chinese regulators’ approval to sell about $1 billion worth of long-term yuan-denominated bonds, WallStreetJournal reported.

The bank aims to lend money to South Africa in rands to limit the country’s exposure to potentially volatile swings in the U.S. dollar. Bank officials said outlays in 2016 could total as much as $2 billion and more than $6 billion in 2017.

One of the challenges the bank faces is that it was designed with a common denominator — fast growth — in mind among members who no longer share that common denominator, according to WallStreetJournal:

Like a mini-World Bank for the BRICS nations, the New Development Bank exemplifies efforts by emerging-market countries, primarily China, to design new international financial institutions to serve their interests. It was hatched at a March 2012 summit India hosted. In a communiqué, BRICS leaders expressed frustration with their limited “voice and representation” in existing global forums considering the size of their economies, which at the time were sizzling at an average growth rate above 5 percent.

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Since then, slumping commodity prices have pushed Brazil and Russia into recession and weakened South Africa, while China is undergoing a wrenching slowdown. Only India among them is expected to post a faster growth rate this year than it did around the time the bank was proposed. The International Monetary Fund pegs the BRICS’ average growth rate at 2 percent this year.

Another challenge for the bank is that sovereign-debt downgrades for some of its member countries could translate into higher borrowing costs for it on international markets. Also, slowing growth makes the kinds of low-payback infrastructure projects development banks lend to even more risky, according to WSJ.

However the bank’s mandate is to be an institution that focuses on accelerating the transition to the green economy, Tass reported.

Preference will be given to renewable energy projects. The bank wants to cooperate with other institutions in accelerating green financing and promoting environmental protection, Maasdorp said.

“We will do a bond issue in China to raise funding domestically on the Chinese market,” he said, adding that the amount will be small at the first stage. Cross-currency swaps to BRICS member-countries may also be used for bonds issued by the BRICS Bank.

“We will aim to have more flexibility in how we tap the capital markets by also raising local currencies,” Maasdorp said.

Each member country will get at least one project in with money raised via the first bond issue. The projects will be announced in April, Maaasdorp told Tass.