Olam opens up positive incentive loans for digital growth

By Alasdair Reilly

LONDON, April 5 (LPC) - Singapore-headquartered agribusiness Olam International has secured an innovative new type of corporate loan that links pricing to the borrower’s progress towards its digital transformation.

The US$350m three-year revolving credit facility is a digital loan (D-loan), a form of positive incentive loan (PIL), which rewards borrowers that achieve pre-arranged targets by cutting their borrowing costs.

Olam’s financing, which refinances existing loans, is the first time that a syndicated loan has been linked to the digital maturity of a company, the company said.

The rise in PILs over the past two years has been dominated by credit facilities linked to environmental, social and corporate governance (ESG) goals.

Increasing numbers of companies, especially in Europe, are trying to cut the cost of corporate loans by linking pricing to pre-existing ESG commitments, but loans with broader positive incentives are gathering momentum.

“Positive incentive loans are really taking off. Clients are busy looking at their options. There has been a broadening away from purely environmental and social elements to more business related developments,” a senior banker said.

“These types of loans help communicate a message to the world, showing companies moving in the right direction, while lenders can demonstrate their support for a particular strategy,” he added.

Like ESG-linked RCFs, D-loans are for general corporate purposes and are not earmarked for a specific kind of investment.

Olam and its lenders agreed on digital score targets to be reached during the life of the financing. If Olam meets those targets, its loan pricing will reduce.

This is an important financial incentive to borrowers to improve their digital maturity as fast as possible, BBVA, the digital coordinator and facility agent on Olam’s deal, said.

Olam’s digital maturity score will be determined using Boston Consulting Group’s Digital Acceleration Index methodology, which will assess Olam across four digital criteria including business strategy driven by digital; digitising the core; new digital growth; and enablers.

The financing is being equally provided by mandated lead arrangers BBVA, DBS Bank, First Abu Dhabi Bank, JP Morgan, Mizuho Bank, Natixis and Standard Chartered Bank.

“We believe that companies that undertake a digital transformation will be the winners in their sector in the long term,” Ricardo Laiseca, BBVA’s head of global finance, said.

“Digitisation translates into greater competitiveness and profitability, which will allow these companies to stay ahead of the competition.”

Olam’s deal shows that the range of targets around which PILs are structured is expanding.

Already PILs have been tied to a wide range of goals including carbon emissions, fuel and water usage, employment, renewable energy, access to affordable energy, child labour, and the empowerment of women.

In February UK-based educational technology group Pearson agreed a US$1.19bn sustainability-linked loan refinancing, the first syndicated loan globally with targets linked to education.

The margin on the 5+1+1-year loan is linked to Pearson’s commitment to extend its vocational educational reach internationally in support of the United Nations’ sustainability goals, especially Goal 4 on education.

The revolving credit was coordinated by Bank of America Merrill Lynch and Barclays as bookrunning mandated lead arrangers. ANZ, BNP Paribas, Citigroup, HSBC, JP Morgan, MUFG and TD Bank were mandated lead arrangers.

BNP advised on the sustainability element of the loan, while Barclays is facility agent. (Editing by Christopher Mangham)