Singapore-based healthcare private equity firm Quadria Capital became the first Asian borrower to secure a “social loan” when it obtained a $200 million revolving credit facility earlier this month.
Social loans are credit facilities issued in accordance with the Social Loan Principles published by the Loan Market Association. The principles mandate that the terms of the loan meet the following criteria:
- The proceeds of the loan be used for social projects, defined as projects that “directly aim to address or mitigate a specific social issue and/or seek to achieve positive social outcomes”.
- The borrower must communicate to lenders the social objective of the projects; how the merits of a project are evaluated; and any perceived social and environmental risks.
- The proceeds of the loan should be credited to a dedicated account or otherwise tracked to maintain transparency.
- Borrowers should provide an annual report detailing how the proceeds are being used until the loan is fully drawn (or until the loan maturity in the case of a revolving credit facility).
HSBC Singapore and ING Singapore Branch are the lenders, with the latter acting as sole social co-ordinator. “We’ve had a long relationship actually with both ING and HSBC,” Quadria managing partner Abrar Mir told New Private Markets. “We share a common belief in making a positive impact on the communities and societies that we serve… Together, we recognised the need for financial alignment not just for equity investors but also for debt providers that can tangibly realise a social mission.”
From the borrower’s perspective, the main benefit is more favourable repayment terms. Mir said: “A conventional loan structure currently involves using SIBOR or SOFR as the underlying benchmark, combined with an additional premium. This premium can vary between 1.8 percent and 2 percent, providing room for flexibility. Once we achieve the social goals mutually defined by both investors and lenders, a very substantial discount is applied.”
The structure has been used in a number of jurisdictions (Legal & General Affordable Homes obtained a £150 million social loan last year, for example), but, until now, had not been put to use in Asia.
“The landscape of debt financing in Asia is complex,” Mir explained. “The adoption of various instruments, even those well established in the US and Europe such as subscription lines, takes longer to develop in Asia. Many major banks display a greater risk tolerance to Asia, so it takes a while to permeate.”
Quadria is planning to use funds to make “one or two” new investments this year, said Mir. $77 million from the facility has already been used for India’s Maxivision Eye Hospital, and the firm has a “pretty deep live pipeline for next year”. If it fails to use the proceeds in a way that satisfies the conditions of the loan, Quadria would absorb the additional cost of repayment, rather than passing the burden on to LPs. However, Mir stressed that “the probability of that happening is highly unlikely”.