Bank of China (BoC), through its Frankfurt branch, printed on August 13 what it described as the world’s first SGS (sustainability-linked, green and social) bond amounting to 2.5 billion yuan (US$349 million), whose proceeds are earmarked to finance or refinance a pool of eligible SGS loans.
The Reg S, two-year bond was priced at par with a similar coupon and re-offer yield of 2.68%. This was in line with the final price guidance and 47bp tighter than the initial price guidance of 3.15% area.
The offering, which was drawn from BoC’s US$40 billion medium-term note programme, garnered a final order book of 19 billion yuan from 68 accounts, with 99% of the bonds distributed in Asia and 1% in EMEA. By type of investors, banks and other financial institutions accounted for 82% of the paper, while official institutions and insurance companies bought 12%. The remaining 6% was taken by asset and fund managers, and private banks.
HSBC is the primary ESG structuring adviser, while Mizuho Bank, Crédit Agricole CIB and BNP Paribas are the joint ESG advisers. The four banks also acted as the joint global coordinators, bookrunners and lead managers, along with Bank of China, Agricultural Bank of China, Bank of Communications, BOSC International, China CITIC Bank, China Construction Bank (Asia), China International Capital Corporation, China Securities International, CITIC Securities, Guotai Junan International, Huatai International, Hua Xia Bank, (Hong Kong), ICBC, Industrial Bank (Hong Kong) and Standard Chartered.
Ernst & Young Hua Ming is the post-issuance report assurance provider, while Sustainable Fitch is the external review provider on the SGS bond framework. The proceeds of the SGS bond will be allocated to various domestic and overseas markets through the BoC global network.
Under the SGS bond framework, BoC Frankfurt will issue bonds to finance or refinance sustainability-linked loans (SLLs), green loans and social loans simultaneously. According to Sustainable Fitch, the eligible SLLs will have key performance indicators (KPIs) that contribute to climate transition and/or socio-economic advancement, while the eligible green and social loans will align with the eight environmental and four social use of proceeds categories described in the framework.
BoC has been at the forefront of groundbreaking deal structures in the G3 bond market and in introducing new sustainability type of asset class. In October 2021, the bank’s London branch printed the world’s first sustainability re-linked bond (SRLB) amounting to US$300 million, highlighting the convergence of the loan and bond markets.
The SRLB is relinked to the sustainability performance targets (SPTs) of the underlying SLLs. BoC says the corresponding coupon adjustment of the SLRB is adjusted according to the margin adjustment of the underlying SLLs through the relinking mechanism defined in the sustainability re-linked bond management statement.
