INDUSTRIAL and Commercial Bank of China’s (ICBC) Luxembourg branch on September 29 priced a US$2.15 billion equivalent debut green bond in three tranches, attracting strong interest from Asian and European accounts.
The notes are certified by the Climate Bond Standards Board and CICERO was the second opinion provider. Proceeds are earmarked to finance or refinance green assets including renewable energy projects.
The bond comprised a US$450 million three-year floating rate note which was priced at par with a coupon of 77bp over three-month Libor. The second tranche was a US$400 million five-year fixed note, which was priced at 98.880% with a coupon of 2.875%, to offer a yield of 2.901%, equivalent to a spread of 99bp over US treasuries. The final tranche was a 1.1-billion-euro three-year floating rate note, priced at par with a coupon of 55bp over three-month Euribor. ICBC’s Luxembourg branch is rated A1 by Moody’s.
The US dollar three-year floating rate note was oversubscribed at 1.46x attracting an order book of US$660 million from over 47 accounts. The note attracted robust demand from European investors, who comprised 74% of the demand and Asia 26%. Banks and Private banks accounted for 36% of the order book, fund managers 27%, corporates 17%, sovereign wealth funds 14%, and insurance companies 6%.
The five-year fixed rate note was also oversubscribed at 1.525x, attracting an orderbook of US$610 million from over 32 accounts. The five-year proved much more popular with Asian accounts who comprised the bulk of the order at 84%, with European accounts at 16%. Banks and private banks accounted for 83%, and fund managers at 14%, and others 3%.
The three-year euro-denominated floating rate note was oversubscribed at 1.63x attracting an order book of 1.8 billion euros from 82 accounts. European accounts comprised the bulk at 71% and Asia 29%. Fund managers accounted for 56%, banks and private banks 26%, corporates 8%, sovereign wealth funds 7%, and insurance/others 3%.
Bank of America, Credit Agricole CIB, HSBC and ICBC (Asia) were the joint global coordinators for the deal. Credit Agricole CIB and HSBC were joint green structuring advisors. BNP Paribas, Citi ICBC International, ICBC, Standard Chartered, SEB, SG CIB and UBS were joint lead managers and joint bookrunners.
The deal not only represented an inaugural issuance for ICBC but also continued to cement China’s place as the green bond leader in Asia. Data from Thomson Reuters show that out of the 57 green bonds issued in Asia-Pacific in 2017 YTD, Chinese issuers accounted for almost half of all issuances, with noteworthy deals from Three Gorges Corporation and Bank of Beijing. Asia-Pacific has raised US$42 billion worth of green bond proceeds in 2017, a more than 50% increase compared to the full year of 2016, Thomson Reuters data reveals.
Despite the abundance of green bonds in Asia, there are calls to further examine the measurable impact of bond proceeds. Currently, third-party verifiers and issuers state where the proceeds will go, but don’t necessarily report on how efficiently the proceeds are being used. “It’s an absolute requirement for a creditable green bond market to develop, to show the impact of the money at some stage,” says Robert Barker, head of sustainable finance & investment, global markets, Asia-Pacific, at BNP Paribas.
Although the growth of green bonds in APAC and China is an exciting accomplishment, it still pales in comparison to the green financing demand needed for China to fulfill its Paris COP 21 obligations. Under the COP 21 framework, China needs to increase the share non-fossil energy to 20%. The drive to be more environmentally friendly will create a Chinese green financing demand of US$2.2 trillion by 2020, with most investment needed for waste management and energy sectors, according to data from IEA Energy.