The bank is advising the Tata Group company on a Sustainability-Linked Loan (SLL) framework which introduces targets related to environmental, social and governance (ESG) standards for fundraising, people aware of the developments told ET.
The funds which Tata Communications aims to raise under the framework – around $1 billion – would be used for refinancing existing loans as well as structuring fresh loans, the people said. Adherence to the SSL targets typically brings a pricing benefit, in the form of a lower rate of interest. Missing the targets results in a higher interest.
“Effectively, Tata Communications is being advised by Bank of America for the SLL framework. The concept, which is in line with global investor expectations, is to link loans to two or three global sustainability pillars,” one of the people said.”Typically, the pricing benefit for such loans is in the region of 5-15 basis points, while missing a stipulated target would mean that the interest rate on the loan goes up by a similar quantum,” the person said.Emails sent to Tata Communications and Bank of America seeking comment on the matter did not receive any response till the time of going to press.
Apart from pricing benefits, the decision to choose the SSL framework widens the investor base for Tata Communications when it comes to raising funds, as there is an established global ecosystem of financiers who are mandated to deploy funds in green papers and loans.
Further, given that these loans typically have a certification framework from external institutions, Tata Communications’ decision to opt for such a structure aims to display its commitment towards ESG targets, especially as failure to adhere to the targets brings in a higher rate of interest.
“Based on the fundraising requirement of Tata Communications, they will approach lenders and other financial institutions to structure loans in a way that at least one of the ESG areas is covered under the SSL framework,” a second person said.
The decision to sign up for the SLL framework comes at a time when Tata Communications is ramping up spending on artificial intelligence as it progresses towards its partnership with global superchip maker Nvidia to create an AI supercomputer.
ET reported last month, citing Tata Communications’ chief executive officer AS Lakshminarayanan, that the Tatas would partake in the Centre’s AI Mission to offer AI services to startups and researchers.
In July 2023, Larsen & Toubro introduced ESG goals into a portion of the tenure of a $150 million loan from Bank of America due in 2025.
