Bonds Jan 27

Hong Kong breaks new ground with $2.5-billion green bond issuance

Enthusiastic demand reflects strong pick-up in Asia appetite for sustainable financial products, says Hong Kong Monetary Authority, as city hopes to become regional hub

Hong Kong breaks new ground with $2.5 billion green bond issuance
The Hong Kong Monetary Authority - the Chinese special administrative region's de facto central bank - said the 5-year and the 10-year tranche each attracted orders more than five times their issuance sizes. File photo by Reuters.

(ATF) Hong Kong on January 27 announced it had issued $2.5 billion in green bonds, in what is the first 30-year tranche from a government in Asia.

The offering comprises three tranches of US$1 billion 5-year, US$1 billion 10-year and US$500 million 30-year green bonds. The issue “will build a comprehensive benchmark curve for potential issuers in Hong Kong and the region”, the Hong Kong’s de facto central bank said in a statement.

Following a virtual roadshow on January 25, the Rule 144A/Reg S  bonds were priced the next day at 0.635% (22.5 basis points over 5-year US Treasuries) for the 5-year tranche; 1.414% (37.5 basis points over 10-year US Treasuries) for the 10-year tranche; and 2.431% (62.5 basis points over 30-year US Treasuries) for the 30-year tranche.

They saw strong demand from global investors, the Hong Kong Monetary Authority said, with the 5-year and the 10-year tranche each attracting orders more than five times their respective issuance sizes, and the 30-year tranche attracting orders more than 7 times its issuance size.

This reflects the strong pick-up in Asian investors’ appetite for green financial products, analysts said. “Green bonds have been attracting attention for some time, being a key element of the development and growth of sustainable or environmental, social and governance (ESG) investing in fixed income,” said Saida Eggerstedt, head of sustainable credit at Schroders.

CHAMPION OF GREEN FINANCE

Hong Kong – despite its past two years of social unrest, government crackdowns on political dissent and coronavirus-racked economic decline – has tried to position itself as a champion of green finance in the region.

“Hong Kong is now a global ESG financing hub, with a strong ecosystem stretching across public and private sector issuers; across banks and investors; and across market infrastructure providers and advisory institutions," said David Liao, head of global banking for Asia-Pacific at HSBC.

The deal attracted strong interest from a diverse group of conventional and green investors, the HKMA said, adding: “There was overwhelming demand from Asian institutional investors, resulting in the overall allocation of 65% of the total issuance size to this group.” European investors received a 20% allocation while US buyers were allocated 15% of the total issuance.

“The success of the offering demonstrates investor confidence in Hong Kong’s credit strengths and economic fundamentals in the long term," said Paul Chan, the financial secretary.

The bonds are being issued under a newly-established Global Medium Term Note Programme dedicated to green bond issuances. They are expected to be settled on February 2 and listed in Hong Kong and London. The issuance has been assigned credit ratings of AA+ by S&P Global Ratings and AA- by Fitch.

“This is a landmark deal, further demonstrating both the Hong Kong government’s commitment to combatting climate change and the depth and sophistication of the city’s green and sustainable financing market," Liao added.

BOOST FOR PUBLIC WORKS

Chan added: “Building on the momentum from the successful issuance of the inaugural green bond in 2019, we have set up the world’s first government Global Medium Term Note Programme dedicated to green bond issuances to demonstrate the continued commitment of Hong Kong in promoting sustainable development and facilitate the Government’s regular green bond issuance activities.”

The HKMA acts as the Government’s representative in the green bond offerings under the Government Green Bond Programme. Proceeds raised would be credited to the Capital Works Reserve Fund to finance or refinance public works projects that provide environmental benefits and support the sustainable development of Hong Kong.

Hong Kong announced a programme in 2018 to issue up to $13 billion in green bonds, raising $1 billion with its first bond under the Green Bond Framework published in 2019, which sets out how proceeds would be used to fund projects that will improve the environment and facilitate the transition to a low-carbon economy.

Credit Agricole CIB and HSBC acted as joint global coordinators, joint lead managers, joint bookrunners and joint green structuring banks for the Green Bonds offering, and BNP Paribas, Citigroup, ICBC (Asia), JP Morgan and Standard Chartered Bank acted as joint bookrunners and joint lead managers.

Green bonds raised more than $227.6 billion in 2020, surpassing the $188.3 billion in 2019. More than 680 green bond issuances have been launched globally so far since the start of 2020, according to research by global law firm Linklaters.

"The sharp rise in green bond issuance clearly demonstrated that rather than dampen enthusiasm for the asset class, the pandemic contributed to the growing interest among investors," Richard O’Callaghan, a capital markets partner at Linklaters in London, said. 

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