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Thursday, 18 October 2018

SRI Bond

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Industrial and Commercial Bank of China set an important precedent for other Chinese issuers with a US$2.15bn dual-currency Green bond that combined both domestic and international standards.

With global Green bond issuance hitting another record in 2017, the US dollar and euro offering underscored China’s efforts to promote Green finance as it rebalances towards more sustainable economic growth.

ICBC’s Luxembourg branch, rated A1 (Moody’s), on September 28 priced US$450m of three-year floating-rate notes at 77bp over three-month Libor and US$400m of 2.875% five-year notes 99bp wide of Treasuries. A €1.1bn (US$1.3bn) three-year floating-rate tranche priced 55bp over three-month Euribor.

Notably, ICBC aligned its Green bond framework with both international and Chinese standards, heading off international investors’ concerns over the mainland’s definition. It excludes fossil fuel-related assets, large-scale hydropower plants and nuclear power, and commits ICBC to a detailed annual report outlining the use of proceeds and the amount of emissions or energy saved from the projects.

It sought second opinions both onshore – from Zhongcai Green Financing Consultants – and offshore, becoming the first Chinese bank to receive a “Dark Green” grade from the Center for International Climate and Environmental Research, the highest score on the Cicero scale.

This was timely, as the European Investment Bank and the People’s Bank of China earlier this year called for better tools enabling investors to compare global Green bond standards and facilitate cross-border capital flows.

The transaction also supported China’s international infrastructure initiative, as the first Belt and Road Green bond to be certified by the Climate Bond Standards board.

Proceeds from the trade were earmarked to finance eligible projects in renewable energy, energy efficiency, low carbon or low emission transport, sustainable water and wastewater management.

ICBC launched the deal in September, tapping the last window before China’s week-long National Day Holiday and the 19th National Congress in October, and drew strong demand from investors. The momentum enabled ICBC to price all three tranches 20bp–23bp tighter than initial price guidance.

The final order book stood at US$3.4bn, with European investors – rather than the traditionally strong Asian investor base – taking a large chunk of the notes. European investors snapped up 74% of the three-year US dollar floater, and 71% of the euro three-year floater.

Bank of America Merrill Lynch, Credit Agricole, HSBC and ICBC (Asia) were joint global coordinators. The four banks were also joint bookrunners and joint lead managers with BNP Paribas, Citigroup, ICBC International, ICBC Standard Bank, SEB, Societe Generale and UBS.

Credit Agricole and HSBC were joint green structuring advisers. ICBC’s Green Reg S senior unsecured bonds are rated A1 by Moody’s.

To see the digital version of this report, please click here

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