Envision Energy, the second-largest wind turbine manufacturer in China and fourth-largest in the world, made history in the Asian syndicated loan market in December last year, with its dual-currency, green and sustainability-linked term loan facility.
The deal was the first in the region to incorporate both green use-of-proceeds, as well as Science Based Targets initiative (SBTi) sustainability commitments – earning it the “dual ESG” loan moniker. It was the first such facility to be raised by a China-headquartered multinational.
“The innovative structure, which combines the green use of proceeds with sustainability-linked key performance indicators (KPIs), was well received by the market,” explained Sunil Veetil, FinanceAsia Editorial Board member and head of Sustainability for Asia Pacific Commercial Banking at HSBC.
“We’re seeing more clients come to us and ask about this type of dual-ESG structure,” he told FA.
HSBC acted as the sole sustainability coordinator and facility agent on the deal, and as joint global coordinator, mandated lead arranger and bookrunner, alongside Citi. Industrial Bank, Bank of Communications, CMB Wing Lung Bank, Commerzbank, Hang Seng Bank and Natixis were mandated lead arrangers and bookrunners, while Bank of China (Hong Kong) and China CITIC Bank International came in as mandated lead arrangers.
Facilitating flexibility
Envision sought a dual facility as it had green projects in the pipeline as well as its own sustainability framework, noted Benjamin Ng, co-head of Asia debt capital markets, loans and acquisition finance at Citi.
The firm published its Green Finance Framework in May 2020, following independent review and approval by second party opinion (SPO) provider, Sustainalytics.
The syndicated loan structure offers Envision flexibility in terms of use of proceeds. The funds can be applied to projects that deliver environmental benefits; as well as to wider corporate efforts that aim to reduce scope 1, 2 and 3 greenhouse gas emissions and increase reliance on renewable energy generation.
“The company was looking for a financing solution that reflected its commitment to both the Green Loan Principles and Sustainability Linked Loan Principles, and was successful in completing one of the very few deals with a dual structure in the Asia Pacific loan market,” Ng told FA.
A spokesperson for Envision offered FA the firm’s perspective.
“The deal is quite unique and sets a good example in the market. We set three challenging sustainable KPIs related to wind turbine installation and greenhouse gas emissions, in accordance with Greenhouse Gas Protocol.” Just one KPI would have been sufficient to earn it the sustainability label, she added.
“The challenge is that we will need to increase our manufacturing facilities to produce more renewable products, while at the same time reducing our carbon emissions,” the contact explained.
To achieve its three KPIs, Envision will need to increase substantially its sales of wind turbines in China and overseas. If successful, the company will benefit from a 0.06 percentage point reduction in borrowing costs.
“We believe such green reward schemes that lower financing costs will encourage more ambitious companies to devote [resources to] ESG and sustainable business [practices],” the spokesperson said.
While the banking teams involved could not disclose full financial terms of the loans, a spokesperson for HSBC confirmed that the deal size was nine-figures, priced in both US dollar and euro, with a three-year term. It was 1.3-times oversubscribed.
“This transaction provides a blueprint for other corporates that have both green projects and sustainability objectives, to access funding in the syndicated loan market,” added Citi’s Ng.
Market support
Shanghai-headquartered Envision Energy is the wind power development and energy storage division of Envision Group. Besides renewable energy generation and storage, the group is engaged in electric vehicle (EV) batteries through Envision AESC, and systems relating to the artificial intelligence of things (AIoT), through Envision Digital. The company also owns Envision Ventures, which established in 2021 a RMB10 billion carbon neutral technology fund, with Sequoia China.
In February, Envision unveiled plans to build the world's largest single unit onshore wind turbine, in China's Sanbei region, which constitutes one of two wind belts in the market, for its abundant wind resources. The company has also partnered Spanish banking group, Santander, on net zero industrial park projects in Spain and globally.
The group announced a commitment to achieve carbon neutrality across its operations by 2022, and throughout its value chain by 2028. Unable to comment on progress related to this ambition, the spokesperson said that the firm plans to publish an update via its upcoming carbon neutrality report 2023 on Earth Day (April 22), which will “provide a detailed and transparent overview of our progress”.
Envision’s dual ESG facility was arranged in Hong Kong, where eligible bond issuers and loan borrowers can benefit from them Green and Sustainable Finance Grant Scheme (GSF Grant Scheme) – a subsidy to help issuers cover expenses related to bond issuance and external second-party opinion (SPO). The programme was announced by the government in May 2021, to promote the development of green finance.
Similar schemes exist in China, where renewable energy and green finance have been at the forefront of Chinese government policy since the country committed to achieving peak emissions by 2030 and carbon neutrality by 2060. In recent years, China has sought to align its green bond frameworks with those of other nations in pursuit of this goal.
At the Chinese Communist Party’s (CCP) “Two Sessions” gathering in Beijing last month, emphasis was placed on new energy and ESG. During the discussions, the government noted renewables such as solar and wind power projects, as a sector that would receive government support.
The National Development and Reform Commission's (NDRC) 14th Five-Year Plan, which was published in 2021, also outlines the market’s commitments to new energy, new energy vehicles and energy storage. However, in December 2022, China’s government ended an electric vehicle (EV) subsidy scheme that had been in place since 2009 to encourage the purchase of EVs. The government initially intended to phase out the scheme by December 2020, but Covid-19 prompted an extension. Anticipating a fall in demand, some EV makers including China's BYD raised prices, while others such as Tesla maintained them constant, according to media reports.
In Hong Kong, changes to listing rules for specialist tech companies under Chapter 18C should make it easier for firms in the new technology space to publicly list. Additionally, this could have positive spill-over effects into the bond market, noted Angela Chan, partner at Clifford Chance, at a recent conference held by the International Capital Market Association (ICMA) and Hong Kong Monetary Authority (HKMA) on developments and trends in Asian international bond markets.
She told FA, "This will play well into Hong Kong's ambition of enhancing its status as a debt and equity listing venue as well as encourage more green and sustainable issuances in Hong Kong, with ESG being a core focus for some of these specialist technology industries (such as those involved in new energy and environmental protection, and new food and agriculture technologies)."
According to a report by ICMA published in March, China maintained its position as Asia’s largest issuer of international bonds, accounting for 33% of activity across the region in 2022. However, its overall issuance declined by 49% year-on-year (YoY).
Green, social, sustainability and sustainability-linked (GSSS) bonds in Asia also fell by 22% in 2022 to $80 billion, although the proportion of international issuance among total bond activity in the region grew from 16% the previous year, to 23%. Chinese issuers accounted for 43% of this total, followed by South Korean (19%) and Japanese (16%) issuers.
