Emerging economies in Asia, particularly in Southeast Asia, have remained resilient in the face of multifarious challenges to be able to further develop their capital markets towards sustainable growth.

In its latest macroeconomic outlook, the Asian Development Bank (ADB) estimates that Asia’s GDP grew 4.3% year-on-year in 2023. Southeast Asia stands out for its resolute pursuit of sustainable financing, reflecting a maturing ESG market infrastructure and an expanding base of sustainability-focused market participants.

On the regulation front, the release of the Asean taxonomy for sustainable finance (version 2) in March 2023 highlights the determination of countries in the region to raise their ambition of developing a sustainable finance market parallel to that of the European Union. Transition financing is being embraced by more issuers and investors in Southeast Asia, with Singapore playing a crucial role in its development. The launch of the global carbon credit exchange Climate Impact X last June and the introduction of the world’s first multi-sector transition taxonomy in December exemplify the country’s efforts in broadening opportunities and raising the standards for sustainability.

Still, there is much work to be done in accelerating the transitioning of large economies such as Indonesia, Southeast Asia’s most populous country, to greener sources of energy. Transition finance is often cited as key for the country to hit its net-zero target given that coal accounts for more than half of its energy mix. Hopes are high that the ADB-led Energy Transition Mechanism will be concluded this year for the early retirement of the 660-megawatt coal-fired power plant Cirebon-1, which can serve as a template for more similar deals in the country.

Local currency funding

In the face of heightened interest rates, many bond issuers in Southeast Asia looked inwards, resorting to local currency fundraising to support their growth due to the significant cost differential relative to US dollar rates. According to data from ADB’s Asia Bond Monitor released last November, local currency funding in the six largest bond markets in Southeast Asia (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) grew 8% compared to 2022.

The increased focus on local currency bond markets reflects the deepening local investor base in Southeast Asia and the growing sophistication of bond issuers in the region, particularly when it comes to sustainability-themed trades.

Last year saw several landmark sovereign deals in the Asean region such as the inaugural blue bond amounting to 104.8 billion yen (US$757 million) by the Republic of Indonesia in May and the fourth issuance of a sustainability bond amounting to US$1.25 billion by the Republic of the Philippines in January, which was also the single largest sustainability tranche priced by an Asian issuer.

In October, the Bank for Investment and Development of Vietnam became the first lender in the country to issue a green bond, amounting to 2.5 trillion dong (US$101.8 million). The deal was done in accordance with the Green Bond Principles of the International Capital Market Association, showing that the standards of green and sustainability bonds have continued to improve.

In the loan syndication market, sustainability-linked loans (SLLs) continued to gain momentum, with many corporate borrowers completing their debut SLL issuances. Minor International Public Company Limited, for example, secured a €500 million (US$540 million) SLL in September, a first of its kind in Thailand’s tourism and leisure sector. Malaysian shipping company MISC Berhad also signed an inaugural sustainability-linked syndicated term loan amounting to US$527 million in April.

Landmark transactions

In the equity market, Southeast Asia recorded more than 150 initial public offering deals, with Indonesia leading the way in both deal numbers and value, raising over US$3.5 billion through 79 IPOs, according to data from PwC.

In fact, five of the largest 10 IPOs in the region took place in Indonesia. PT Pertamina Geothermal Energy’s offering was the second-largest IPO by a state-owned enterprise in Indonesia and the largest utility and energy IPO in Asean in five years. It was chosen by The Asset as one of the best sustainable finance deals in Southeast Asia.

Despite the tough market conditions, several key M&A deals were completed in the region last year, with businesses seeking to revamp their operations to focus on industries of the future such as renewable energy, healthcare, data centres, and electric vehicle value chain. There were also several notable deals involving companies going private given their unsatisfactory valuations in the public market. In the Philippines, a multinational consortium that included Japanese investors took Metro Pacific Investment Corporation private because of its undervalued share price.

In addition to the key deals, The Asset is also recognizing a number of issuers and advisers in Southeast Asia for their efforts in coordinating and delivering leading landmark deals and advancing the ESG conversation.

ACEN Corporation, a renewables solution provider, is Best Issuer for Sustainable Finance in the Philippines for its active participation in the bond and equity markets, including its pioneering move to issue perpetual preferred shares to expand its fundraising channels.

Thai Union Group, a leading processor and exporter of seafood products, wins as Best Issuer for Sustainable Finance in Thailand in recognition of its financing track record in supporting ESG activities. In December, the company executed an 11.5 billion baht (US$325 million) syndicated sustainability-linked financing, which is part of its commitment to raising sustainability-linked financing to 75% of its long-term finance by 2025. 

Several financial advisers are also recognized for putting together the best sustainable finance deals across the region. HSBC wins as Best Bank for Sustainable Finance in Malaysia and Vietnam for its solid performance in the segment in the two markets. Citi played pivotal roles in executing international bond deals in Indonesia and Thailand, thus earning the Best Bond Adviser award in the two markets. UBS is Best Equity Advisor in Indonesia for capturing several IPO deals in the country.

For the complete list of Best banks/Best advisers in Southeast Asia, please click here.

For the complete list of Best deals in Southeast Asia, please click here.

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