HSBC arranges $118m for Square Group under sustainable finance

The Hongkong and Shanghai Banking Corporation (HSBC) in Bangladesh has arranged the country's first-ever Sustainability Linked Loan (SSL) for Square Group.

The total facility of $118 million (approximately Tk1,000 crore) of sustainable financing has been structured to align Square Group's business to better long-term renewable energy usage.

The deal was launched through a virtual session attended by Power, Energy and Mineral Resources Affairs Adviser to the prime minister Dr Tawfiq-e-Elahi Chowdhury (Bir Bikram) as the chief guest and Mohd Humayun Kabir, executive director of the Bangladesh Bank as the special guest.

Sustainability Linked Loans aim to improve the borrower's sustainability profile by aligning loan terms to the borrower's performance against predetermined Sustainability Performance Target (SPT) benchmarks.

For example, the interest rate under the relevant loan agreement may be reduced where the borrower satisfies a pre-determined SPT threshold or vice versa. By linking the loan terms to the borrower's sustainability performance, borrowers are economically incentivised to make improvements to their sustainability profile over the term of the loan.

Tapan Chowdhury, managing director of Square Group, said, "Square Group and HSBC have always pioneered positive changes across industries. Sustainability sits at the core of Square's purpose and is dear to my heart. We are delighted to see Square be the first Bangladeshi organisation to utilise a sustainability linked loan and we look forward to every success of this project, intending to build a sustainable world for future generations."

Calling it a new beginning for both Bangladesh's banking sector and business community, and an important step in creating a stronger, more resilient and sustainable economy, Md Mahbub ur Rahman, CEO, HSBC Bangladesh, said, "At HSBC, we are proud to play our part in structuring the country's first sustainability-linked loan and we will continue to support the development of Bangladesh's financial markets."

"I also want to thank our regulators for their strong leadership and encouragement in driving this important initiative forward," he added.

SSLs are not the same as green lending which is used to finance a specific green purpose. But, SSLs can be applied for any purpose – green or not.

The loan under SSLs is an in-built pricing mechanism meaning that the loan is cheaper if the borrower can achieve certain sustainable – environmental, social and governance – related targets. The loan can be costly if the borrower fails to achieve the targets.

The use of SSLs grew rapidly in 2019, with a huge popularity in Europe, as around 80 percent of all SSLs were issued last year. According to Bloomberg data, companies raised $62 billion of sustainability-linked loans worldwide in the first nine months of 2019, surpassing 2018's full-year total.