HSBC policies rule out $1bn Noble Group refinancing

HSBC sustainability policies rule out $1bn Noble Group refinancing

 

LONDON: International banking giant HSBC’s provision of financial services for Noble Group’s $1 billion refinancing violates its own agricultural commodities and forestry policies and must be withdrawn, the Environmental Investigation Agency (EIA) urged today.

EIA issued the call in an April 6 letter to senior sustainability executives at HSBC Holdings following reports the embattled Noble has mandated the bank as lead arranger in a one-year $1 billion credit facility.

EIA has sought clarification that HSBC will uphold its policies and withdraw all involvement from the deal and with Noble until the latter comes into compliance.

Noble owns two controversial oil palm companies that are clearing a combined 55,000 hectares of some of the last significant forests in Papua, Indonesia.

Noble’s management has failed to meet strict time-bound certification targets under the Round Table on Sustainable Palm Oil (RSPO), proscribed in HSBC’s 2014 Agricultural Commodities policy. Neither is Noble on a path to meet them.

EIA believes Noble also violates HSBC’s Forestry policy, which pledges not to knowingly provide financial services to “prohibited business”, defined as those involving “forests being converted to plantation or to non-forest use (deforestation)”.

Senior EIA Forest Campaigner Jago Wadley said: “Noble displays structural non-compliance with HSBC’s policies in ways that the policies themselves stipulate must result in the closure of relationships as soon as possible.”

While Noble’s Papua concessions are bound by RSPO rules, concerns that RSPO standards are not being met have already scared off major investors.

EIA submitted an RSPO grievance against Noble relating to one concession – PT Henrison Inti Persada, in Sorong, West Papua – in 2013.

Also in 2013, the Norwegian Government Pension Fund Global divested its $49 million stake in Noble Group due to the risk of severe environmental damage, arguing RSPO-sanctioned plans were uninformative and added no environmental protection not already afforded by standard Indonesian laws.

In 2014, the two plantation companies were excluded during the negotiation of Noble’s 2015 and 2016 sale of Noble Agri Limited (NAL) to COFCO, a Chinese state-owned commodities house. The deal had been backed by the International Finance Corporation, which has palm oil sector safeguards built into its investment policies.

Noble has subsequently held the concessions for sale with no apparent buyers since September 2014, having initially purchased them following a $2.4 billion refinancing in 2009, also involving HSBC.

Wadley said: “Noble’s toxic Papuan palm oil plantations have repeatedly been rejected by financial behemoths and persist as stranded assets on the Noble’s balance sheet. They now present major problems if HSBC seeks to work with Noble.”

Noble, Asia’s largest commodities trader, desperately needs to settle previous debt facilities and regain investor confidence. That confidence diminished after it failed to shake off a series of bruising reports of accounting trickery, spurring a 65 per cent share price drop from early 2015 to early 2016.

Analysts have suggested banks such as HSBC fear that not refinancing Noble risks the repayment of already outstanding credit, but also fear that Noble may default even if refinanced, further compounding losses.

“Rather than re-inflating Noble to safeguard repayment of previous loans, HSBC must either withdraw from the Noble refinancing or willfully break both its own sustainability rules and the already dwindling trust consumers and regulators place in corporate social responsibility,” added Wadley.

 

  • An EIA briefing outlining how Noble Group violates HSBC policies is available here.

 

EDITORS’ NOTES

  1. The Environmental Investigation Agency (EIA) is a UK- and Washington DC-based Non-Governmental Organisation that investigates and campaigns against a wide range of environmental crimes, including illegal wildlife trade, illegal logging, hazardous waste, and trade in climate and ozone-altering chemicals.
  2. HSBC’s agricultural commodities and forestry policies were announced in March 2014 and seek to ensure the company avoids investments that drive negative social and environmental outcomes. They are considered some of the most progressive in the banking sector.
  3. Noble Group is Asia’s biggest commodities trader. In recent years, Noble moved from an “asset-light” towards an “asset medium” model and purchased a slew of commodity origination projects, including palm oil plantations in Papua. Commodity price drops and other cash-flow factors persuaded Noble to return to an asset-light model that involved the sale of its agribusiness segment and other assets.
  4. The Round Table on Sustainable Palm Oil (RSPO) is a voluntary certification scheme for so-called sustainable palm oil producers, traders and end users, established in 2004.
  5. The Norwegian Government Pension Fund Global – also known as the Oil Fund – is the worlds’ largest sovereign wealth fund, with $899 billion currently under management. In 2013, in response to a campaign by EIA and Rainforest Foundation Norway, the Fund developed more detailed Ethical Guidelines on the exclusion of companies linked to deforestation and climate change, and has made a spate of divestments since then.

 

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