The Hong Kong SAR (HKSAR) government demonstrates its continued commitment in promoting sustainable development, pricing on January 26 a multi-tranche green bond offering totalling US$2.5 billion.
In printing its second green bond transaction, it achieved tight pricing across all three tranches and extended its yield curve as it priced its longest bond tenor ever. The deal also allows the HKSAR government to establish a comprehensive benchmark curve for potential issuers in Hong Kong and the region.
The Reg S/144A deal comprised of a five-year bond amounting to US$1 billion, which was priced at 99.951% with a coupon of 0.625% to offer a yield of 0.635%. This was equivalent to a spread of 22.5bp over the US treasuries, which was at the tight end of the final price guidance of 25bp area (+/- 2.5bp) and 27.5bp inside the initial guidance of 50bp area.
Comparatively, HKSAR’s inaugural five-year green bond amounting to US$1 billion priced in May 2019 had a coupon of 2.50% to offer a yield of 2.555% – representing a spread of 32.5bp over the US treasuries.
The second tranche was a 10-year bond also amounting to US$1 billion, which was priced at 99.638% with a coupon of 1.375% and a re-offer yield of 1.414%. This was equivalent to a spread of 37.5bp over the US treasuries – also at the low end of the final price guidance of 40bp area (+/- 2.5bp) and 22.5bp back of the initial price range of 60bp area.
The third tranche was a 30-year bond amounting to US$500 million, which was priced at 98.812% with a coupon of 2.375% to offer a yield of 2.431%. This represented a spread of 62.5bp over the US treasuries, which was likewise at the tight end of final price guidance of 65bp area (+/- 2.5bp) and 27.5bp inside the initial guidance of 90bp area. This is the first-ever 30-year green bond to be issued by an Asian government and the longest tenor issued by HKSAR.
Strong demand
Following a virtual roadshow on January 25, the deal attracted strong interest from a diverse group of conventional and green investors. The five-year and the 10-year tranches garnered orders more than 5x their respective issuance sizes, while the 30-year tranche attracted an oversubscription in excess of 7x. At the time of the announcement of the final price guidance in the evening of January 26, Hong Kong time, the combined order books were in excess of US$17 billion.
There was robust demand from Asian institutional investors, resulting in the overall allocation of 65% of the total issuance size to this group. This reflects the strong pick-up in Asian investors’ appetite for green financial products and demonstrates Hong Kong’s leading role in championing green finance in the region.
European and US investors received allocation of 20% and 15%, respectively, of the total issuance. Worth noting is the strong preference of European and US investors for longer-tenor green bonds, with a combined allocation of half of the 30-year tranche. By type of investors, 34% of the bonds were distributed to banks, 46% to fund managers, private banks and insurance companies, and 20% to central banks, sovereign wealth funds and supranationals.
Commenting on the deal, HKSAR Financial Secretary Paul Chan says the issuance will help catalyze further growth of the green and sustainable bond market, particularly leveraging on Hong Kong’s strength as a leading green finance hub in the region. “The success of the offering demonstrates investor confidence in Hong Kong’s credit strengths and economic fundamentals in the long term,” he points out.
“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,” says David Liao, head of global banking for Asia-Pacific at HSBC, which acted as the joint global coordinator, bookrunner, lead manager and green structuring adviser on the transaction, together with Credit Agricole CIB.
ESG financing hub
He says 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. “As a result, we have seen a diverse range of issuers pioneering many new products in Hong Kong, which will be key to financing the transition to a low-carbon economy,” he adds.
The green bonds are being issued under a newly-established global medium-term note programme amounting to HK$100 billion (US$12.90 billion) dedicated to green bond issuances. Proceeds raised under the programme will 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.
The HKSAR government published its green bond framework in 2019, which sets out how green bond proceeds will be used to fund projects that will improve the environment and facilitate the transition to a low-carbon economy. Vigeo Eiris has provided a second party opinion for the framework, and the green bonds also received the green finance certificate (pre-issuance stage) from the Hong Kong Quality Assurance Agency.
In addition to Credit Agricole CIB and HSBC, the other bookrunners and lead managers for the transaction were BNP Paribas, Citi, ICBC (Asia), J.P. Morgan and Standard Chartered.
