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Ecuador becomes first sovereign social bond issuer

$400m issue is guaranteed by the Inter-American Development Bank

Ecuador has issued the world’s first sovereign social bond where proceeds will be used to provide access to housing. 

The $400m issuance is backed by a guarantee from the Inter-American Development Bank for $300m in a bid to make it attractive to international investors and reduce financial costs for Ecuador. 

"Aimed at expanding access to homes for those in need of affordable and sustainable housing"

Ecuador, rocked by public protests last year over proposed austerity measures, is under an International Monetary Fund lending programme. 

Fernando Quevedo, representative of the IDB in Ecuador, said: “ It is a great satisfaction to support Ecuador in becoming the first sovereign to issue a social bond, especially because these will be aimed at expanding access to homes for those in need of affordable and sustainable housing. 

“At the same time, the bonds will help activate the economy, as the resources will be channelled to the construction sector, which has a highly dynamic impact on the economy.”

Bond proceeds will be used to provide mortgage loans at a preferential interest rate of 4.99%. 

Vigeo Eiris assessed that the issue met the Social Bond Principles of the International Capital Markets Association (ICMA). In its second party opinion, Vigeo Eiris also found that the bond contributed to SDG 1: No poverty and SDG 11: Sustainable Cities and Communities. 

The IDB has said the social bond will provide housing for 24,000 low to middle-income families and mobilise $1.35bn in investments into the country’s housing sector. 

According to reports, the bond is a dual-tranche offering of class B zero coupon notes and Class A notes that carry a 2.6% coupon and a guarantee from the IDB. 

In related news, on Wednesday the IDB and Japan’s Government Pension Investment Fund (GPIF) announced a partnership to develop social bonds focused on youth education and employment in Latin America and the Caribbean. 

Dubbed IDB Social EYE (Education-Youth-Employment) Bonds, the IDB has issued a total of $2.2bn in various currencies since 2014. 

Hiro Mizuno, chief investment officer of GPIF, said: “GPIF requires our asset managers to integrate ESG into their investment analysis and decision-making. We regard the purchase of green, social and sustainability bonds as one of the direct methods of ESG integration in the fixed income investment. 

“GPIF looks forward to working together on this initiative.”