Wednesday, 26 June 2019

SRI Bond

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As well as smashing records as the world’s largest Green bond, Bank of China’s US$3.03bn three-currency benchmark took on added significance as a sign of the potential for socially responsible financing in China.

BOC’s Luxembourg branch sold a US$750m three-year floater at 100bp over three-month Libor, a US$500m three-year fixed tranche at 125bp over Treasuries, US$1bn five-year at 135bp over Treasuries and a €500m (US$557m) five-year at mid-swaps plus 95bp.

At the same time, the New York branch priced a two-year Rmb1.5bn (US$225m) offshore renminbi tranche at 3.6%.

Proceeds were earmarked for urban rail projects, solar and wind power plants, and waste-water treatment.

A key feature of the transaction was a rating of GB-AAA, the highest possible score on consulting firm EY’s Green rankings. Earlier Green bonds from Asia had drawn criticism as mainly marketing gimmicks that often paid little attention to global standards. EY’s certification, however, gave the deal more credibility, and BOC’s decision to seek third-party verification set an important standard for other Chinese issuers to follow.

Green investors were said to account for 25%–30% of the deal, enabling BOC to add some diversity to its bondholder register and underlining the transaction’s appeal among dedicated environmental funds as the first jumbo benchmark from China.

Demand from European investors was surprisingly high and included some first-time buyers of a Chinese bond. Despite the disruption of the UK referendum two weeks earlier, European accounts piled into the euro tranche and also had larger-than-usual allocations in the Dim Sum and dollar tranches.

Orders across the entire deal reached a robust US$8.5bn at final guidance. Europe and the Middle East accounted for 76% of the euro tranche and around 20% of the Dim Sum and US dollar tranches.

The timing was bold. Priced on July 5, it was the first big new issue in dollars or euros from Asia since Britain’s surprise vote to leave the European Union roiled markets and slammed the door on primary issuance.

Given the deal’s significance to China, BOC may have had its eye on more than just the tightest price, but it managed to set a genuine benchmark without overpaying for the funds, offering a new issue premium in the low single digits despite the volatility.

Bank of China, Bank of America Merrill Lynch, Credit Agricole CIB and HSBC were joint global coordinators on the US dollar and euro tranches. Bank of China, Citigroup and Wells Fargo Securities led the offshore renminbi portion.

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