A lack of economic diversification, coupled with a sometimes-lower availability of external funding sources, means that a decreased oil and gas prices and shifting investor appetite could contribute to deteriorated creditworthiness for some GCC banks. That’s according to S&P Global Ratings, in its recent report mini-series exploring the credit risks that the transition towards cleaner energy sources could have on the GCC’s banks and overall economy.
While GCC economies have somewhat diversified away from oil since 2012, S&P Global Ratings’ hypothetical long-run stress test suggests that the average rating of a Gulf sovereign could fall by two notches from ‘BBB+’ to ‘BBB-’ if oil prices fall below US$40 by 2040, highlighting that the current pace of economic and fiscal diversification is insufficient to counter the decline in oil prices.
Driven by an expansion of the pool of financing options for investors, the sustainable debt market will likely surpass US$400 billion in 2020, said S&P Global Ratings in the latest edition of its annual sustainable debt outlook.
According to the outlook, the strengthening of key market trends such as rising absolute global fixed-income issuance and private financing, as well as the regulatory and political push in Europe, will likely push green-labelled bond issuance to US$300 billion in 2020. Meanwhile, as investors continue to explore ways to contribute to sustainability objectives, the market will continue to diversify and innovate, with more nascent sustainable financing instruments complementing the continued expansion of the green bond market.
A recent report by S&P Global Ratings has concluded that growing competition from cheap renewable electricity, safety concerns, and rising costs of new plants are slowly undermining the viability of nuclear power.
“We see little economic rationale for new nuclear builds in the U.S. or Western Europe, owing to massive cost escalations and renewables cost-competitiveness, which should lead to a material decline in nuclear generation by 2040,” said Elena Anankina, the report’s author.
Despite these challenges, however, nuclear still has its role to play in the energy mix – largely due to the continual development of new nuclear capacity in Russia and China, supported by energy policies and significantly lower construction costs. Moreover, with regions such as Europe installing more intermittent sources, nuclear is playing a crucial role in ensuring grid stability.
S&P Global Ratings scored Adani Green Energy Ltd. Restricted Group 2 (AGEL RG2)’s proposed US$362.5 million green bonds E1/90 under its Green Evaluation – the highest score on the Green Evaluation scale of E1-E4, comprising a Mitigation score of 90, a Transparency score of 89, and a Governance score of 93.
The bonds will be used to finance and refinance solar photovoltaic (PV) power plants and related transmission infrastructure in Karnataka and Rajasthan, India.
“AGEL RG2’s intention to use 100% of the proceeds for solar PV power projects is the main driver of the high score,” said Cheng Jia Ong, the primary analyst of the Green Evaluation.
Green bonds have proliferated since the first green debt instrument was introduced in 2007, with banks and corporate bond issuers leading the pack. However, project bond and emerging market issuers have been more hesitant.
Speaking on TXF Proximo’s podcast, “Transmissions”, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, argues that this may not be the case for much longer.
“Because there is interest among investors to benchmark according to environmental contribution as well as credit quality, there may be opportunity for green project bonds in emerging markets to grow,” said Wilkins.
Meanwhile, he believes that green project bonds may well see a surge in market interest if the high level of environmental contribution that S&P Global Ratings generally sees from the asset class is made explicit in offering circulars.
According to S&P Global Ratings, the development of the EU’s proposed green finance taxonomy is one of the most important developments in the world of sustainable finance in recent years.
However, as with any major change, questions surrounding the implications for the capital markets abound. In an article for Responsible Investor, Michael Wilkins, Global Head of Analytics and Research, Sustainable Finance, S&P Global Ratings, considers the “pain points” that the taxonomy will have to overcome if it is to be successfully implemented and effectively drive capital towards sustainable objectives.
Namely, according to Wilkins, defining what can and cannot be defined as a sustainable economic activity should be the main focus of the taxonomy’s development, if it hopes to effectively engage the broader market.
S&P Global Ratings recently announced Pablo Lutereau as its new Head of Infrastructure and Project Finance in the Europe, Middle East, and Africa (EMEA) region.
Following the news of his appointment, Mr. Lutereau said, “Infrastructure plays a critical role in EMEA’s economic growth and development in terms of social well-being. As such, I’m very pleased to start the next chapter of my S&P Global Ratings career within the dedicated EMEA team and look forward to building upon our 25-year history of assessing transactions in this market.”
Lutereau moves from S&P Global Ratings’ Buenos Aires office, where he was Head of Infrastructure & Utilities in Latin America. He will start his new role in January 2020 and will be based in Madrid.
In its recent report, S&P Global Ratings indicated that a no-deal Brexit could result in the downgrade of half of the 41 publicly rated U.K. social housing associations (HAs) in its portfolio by one notch. Particularly vulnerable are those ratings on providers that either depend on proceeds from market sales or receive extraordinary support from their related government.
There could be turbulence ahead for ADP, France’s largest airport operator. A weakening economic environment could weigh on ADP’s credit quality during a period of significant international expansion. What’s more, ADP’s possible privatisation – despite being on hold pending a referendum – carries significant risks (should a change in ownership occur).
Writing for International Airport Review, Juliana Gallo, director, Infrastructure EMEA, S&P Global Ratings, argues that the many credit strengths in the ADP’s favour could allow the group to manage its heavy capex programme and future acquisitions, while maintaining credit metrics commensurate with an ‘A+’ rating.