CLP Wind Farms, the Indian subsidiary of Hong Kong-listed CLP Holdings, has raised Rp6 billion ($90.5 million) from a green bond offering, helping the group reduce its cost of funding and planting a new marker for issuance in Asia.
So far there has been relatively little green bond issuance from Asia compared to Europe, where the market originated in 2007 and issuers follow a set of voluntary guidelines known as the Green Bond Principles established by market players.
But that all looks set to change with China on the verge of publishing its own comprehensive green bond framework and India-related issuers sprouting up with a total of five deals this year raising just over $1.6 billion including CLP Wind Farms' new offering.
Yes Bank seeded the way in February with a Rp10 billion transaction, which also designated proceeds for renewable energy projects. This is a key priority for the Indian government, which is targeting investment of $200 billion to build 100GW of solar power and 60GW of wind power by 2022, up from 30GW currently.
CLP Wind is the largest wind power developer on the sub-continent with 1,000MW of committed projects across six states. The new transaction marks an evolution in its funding structure as it migrates from a project finance model to a corporate finance one.
Initially, each of its projects was ring-fenced and funds were raised against the security of individual assets. That began to change in 2013 when some of the projects started to become operational and the group was able to start pooling cash flows in one corporate entity, while keeping individual assets separate.
Then month, it pooled all the assets under the same entity. Bankers said CLP Wind is the first company in the Indian renewables sector to do so.
This structure makes sense because it has enabled CLP Wind Farms to bring down its cost of funds by about 200bp and fix its debt. "If it raised money from the banking sector, it would have cost about 11% and there would have been a floating rate payment schedule as that's how the local market works," said one banker. "This deal has a 9.15% coupon and its fixed."
The transaction, which has three equal tranches maturing in 2018, 2019 and 2020, carries an AA rating from India Ratings and Private Research.
"Pricing at 9.15% is the tight end of the double-A range," the banker added. "Corporates with this rating tend to price between 9% and 10% compared to 11% to 12% for single-A credits and roughly 8% for public sector borrowers."
Proceeds are being used to fund capex, although the group has followed the Export-Import Bank of India's lead and failed to get the independent second opinion required by the Green Bond Principles. The state-owned lender attracted some criticism for setting a bad example in March when it launched a debut $500 million benchmark issue without one.
Investors rely on second opinions as a form of independent certification, which means they do not have to do their own due diligence. However, borrowers tend to not like them because they increase the cost of bringing a deal to market.
Bankers said that CLP Wind has still followed the spirit of the Green Bond Principles since it will establish a separate section on its website, which will make ongoing disclosures about the use of proceeds. These proceeds are also being held and monitored in a separate bank account. Finally, the group also obtained an auditor's certification covering the use of proceeds.
"The fact is that their only business is environmentally friendly so it's not as if there is any 'brown' element to their operations [that] investors need to be wary of," the banker argued.
The other major Indian borrower that has accessed the green bond market is Yes Bank. It has now completed two transactions and obtained a second opinion after working with International Finance Corp (IFC).
The supranational purchased its second Rp3.15 billion issue via a Rp3.15 billion green Masala bond executed in the offshore bond markets this August. IFC's five-year deal carried a 6.45% coupon, while Yes Bank's 10-year bond was priced at 8.95%.
Chetan Joshi, head of Indian debt capital markets at HSBC, believes more deals will be on the way. "Sustainable financing, including green bonds, is one of the most important and fast-growing segments of the global markets," he commented "We expect CLP's issuance to pave the way for the standardization of this new financing instruments in the Indian capital markets."
The two other bookrunners were IDFC and Standard Chartered.
