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Singapore PE fund locks in financing tied to sustainability in world-first for private capital
A SINGAPORE-BASED private equity (PE) fund has become the first in the world to secure financing for PEs that is tied to sustainability improvement, reflecting the rising interest from the financing sector in factoring in environmental, social and governance (ESG) in private capital.
The Singapore-based private equity fund, Quadria Capital, secured a US$65 million three-year revolving facility from ING, through which Quadria Capital would have its borrowings' interest rate pegged to its sustainability performance, ING said in a press release on Friday.
Quadria Capital is a private equity sponsor focusing on the healthcare sector in developing Asia. It has raised a substantial portion of its US$500 million Quadria Capital Fund II and expects to close the fund by the end of this year, ING said.
Quadria's facility will peg the interest rate to a set of ESG performance targets on its Fund II investee companies and investment portfolio. With this, the interest rate will be linked to the fund's sustainability improvement through its investment activities. The set of ESG metrics is based on key performance indicators provided by B Analytics and further mapped to Quadria's own internal ESG frameworks - which follows the United Nations' Principles for Responsible Investment (PRI) - as well as an independent materiality assessment.
Performance of the fund against these metrics will be assessed annually by B Analytics and if pre-determined targets are met, the interest rate will be reduced in the following year. ING did not disclose the rate of reduction.
This comes as private capital makes up just 6 per cent of the UN PRI signatories' US$90 trillion assets under management globally, said Herry Cho, ING's head of sustainable finance in Asia. "The potential for private capital to become more ESG-focused is quite significant," said Ms Cho, adding that the bank aims to promote "socially responsible behaviour" in the funds and fund managers financed by the bank, by incentivising their shareholders.
ING's head of clients and sectors for Asia-Pacific Eddy Henning further said that private-equity sponsors will increasingly link their performance to sustainability metrics because the returns of the asset class has been generally out-performing others as allocations from the international investor base also increase.
"These investors have caught on to the fact that contrary to popular belief, an ESG strategy can enhance returns as well as unlock new access to capital," he added. "We see sustainability improvement products highly replicable not only in private equity and healthcare, but also in real assets, infrastructure, or financial inclusion amongst others."
In the statement, Abrar Mir, managing partner at Quadria Capital, said it was a "meeting of minds" between the private equity fund and ING when the bank first proposed this. "Quadria Capital is a firm focused on a dual mandate of positive investment returns with constructive social impact by increasing and improving accessibility and affordability to healthcare in South and South-east Asia."
In 2017, ING was the first financial institution globally to launch the concept of a sustainable loan when it collaborated with Royal Philips on a one billion euro (S$1.51 billion) syndicated loan that had the interest rate coupled to sustainability performance and rating.
ING also has closed four sustainability improvement loan facilities in Asia so far, including with Wilmar International. It has closed 66 such deals globally.