Social roads

Sacyr issues first social bond for an infrastructure project in LatAm.

Sacyr, the Spanish infrastructure and construction group, recently issued a pioneering USD 209 million social bond in Colombia issued by its subsidiary Sociedad Concesionaria Vial Montes de María S.A.S. for the refinancing of the Puerta del Hierro – Palmar de Varela y Careto Cruz del Viso road.

The project, part of the Colombian government’s 4G concessions, included the improvement of 193 km of existing highway and the construction of a 5 km extension, as well as the operation and maintenance of the combined corridor.

Sacyr was the main promoter of the bond which fits within the framework of the group’s 2021-2025 strategic sustainability plan. Notably, the bond is backed by the US International Development Financial Corporation. BTG Pactual and Santander will coordinate the placement of the bond in the market.

A Latin American infrastructure investor was sceptical, “A social bond has been used because a highway cannot be considered green. I guess it is innovative because it is possible to calculate the generation of direct and indirect jobs, community relations etc but as this is a refinancing and the project is already finished, many of the benefits from the construction have already occurred.”

“I guess it is innovative because it is possible to calculate the generation of direct and indirect jobs, community relations etc but as this is a refinancing […] the benefits from the construction have already occurred.”

Infrastructure investor, Latin America

According to the Inter-American Development Bank (“IDB”), Latin America has seen a rise in pay-for-success mechanisms like social bonds with some countries like Colombia being ahead in terms of promoting their use. As the region struggles to overcome the effects of the COVID-19 pandemic, an increase in this type of scheme is expected, as they allow the issuer to garner support from local authorities while helping raise funds for projects with a positive social outcome. Thus, improving food security, access to education and health care and financing local economies can have, in some cases, a positive return for the issuer.

An asset manager at a global bank discussed the benefits of such a mechanism for the issuer and investor, “For the issuer it highlights their ESG credentials and this may command a sort of ‘greenium’ if demand from dedicated ESG funds buy into the story. As it is a refinancing, most of the obligations for the issuer have already been met, the only outstanding obligations relate to the time and use of proceeds. For a green bond fund, that has a use of proceeds approach, it brings diversification, duration and low execution risk.”

“For the issuer it highlights their ESG credentials and this may command a sort of ‘greenium’ if demand from dedicated ESG funds buy into the story.”

Asset manager, global bank

Commitments attached to the bonds have not been disclosed although this issuance has been developed by the concessionaire in line with the social bond guidelines defined by the International Capital Markets Association (“ICMA”). International financial lenders such as the World Bank’s IFC aligned their social bond programme with ICMA guidelines, granting credibility to the project.

Vigeo Eiris (“VE”), an ESG research company, rubber stamped the social credentials of the project with a Second Party Opinion (“SPO”) report. Unfortunately, this second party opinion is based upon public record research, VE’s ‘exclusive ESG rating database’ (whatever that is) and interviews with the issuer. With no interviews of other stakeholders, no data collection or measurement etc, we wonder how independent this report could be.

Yet another reason why intelligence firms, such as Deheza, are better placed to evaluate ESG credentials.


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