Hong Kong intends to issue its inaugural sovereign green bonds with a value of up to HK$100 billion ($12.8 billion), according to speakers at the Asian Financial Forum.
The Hong Kong government will issue its first sovereign green bonds in the first half this year, said James Lau, the Hong Kong Secretary for Financial Services and the Treasury. “We have adopted a strong green agenda.”
The maximum principal amount of these bonds is HK$100 billion, which “represents a long-term target over a long period of time” of at least 10 years, according to the Financial Services and the Treasury Bureau in June last year. The HK$100 billion bond will be the largest sovereign green bond issuance in the world.
The Hong Kong government will “soon” launch a Government Green Bond Programme with a borrowing ceiling of about $13 billion, confirmed Hong Kong Financial Secretary Paul Chan Mo-po. “That should encourage more issuers to arrange financing for their green projects through our capital markets.”
Green finance was a major topic at the forum in Hong Kong on 14 January, with calls for greater collaboration between Hong Kong, Ireland, Luxembourg, China and the Asian Infrastructure Investment Bank (AIIB).
Green finance is a policy priority of the Hong Kong government. “We see Hong Kong serving as a premier financing centre for international and mainland green companies and projects, raising funds by issuing bonds and IPOs,” Chan said.
Numerous local, mainland and international organisations, including the Asian Development Bank, the World Bank and the European Investment Bank, have made use of Hong Kong to issue green bonds.
Indonesia issued the first Asian green bond, which was also Shariah-compliant, in February last year.
It sold a $1.25 billion five year bond at 3.75%, which was more than twice oversubscribed. It is currently trading down at 98.50 to yield 4.148%, according to data from Bloomberg.
Globally, green issuance in 2018 hit another record. The Climate Bond Initiative estimates that total issuance reached $185 billion, up from just $9 billion in 2013.
No wonder then that Hong Kong is keen to join the fray.
Hong Kong’s green bond market is still nascent, with only an estimated 13 green bonds totalling $5 billion issued by the middle of last year.
Hong Kong property firms started to issue green bonds last year. Swire Properties sold a $500 million 3.5% 10-year green bond in January last year and New World China Land printed a $2 billion 4.75% 5-year green bond in November.
Green finance is a focus for the Hong Kong Monetary Authority (HKMA) in the coming year and it is looking into whether “more can be done” on green finance, said HKMA deputy chief executive Eddie Yue without giving details.
“We value international collaboration,” he added.
GOING GREEN
As an example of international collaboration, last October, the Hong Kong Green Finance Association and Sustainable Nation Ireland, the Irish national platform promoting sustainable finance and business, signed a memorandum of understanding for closer collaboration on green finance, said Michael D’Arcy, Irish minister of state at the Department of Finance.
Luxembourg is one of the top three green financial centres in the world, said Luxembourg Finance Minister Pierre Gramegna. Seven major Chinese banks have offices in Luxembourg and the country's green stock exchange can build bridges between the EU and China.
Ever since Luxembourg launched its green stock exchange two years ago, over 50% of the world’s green bonds have been listed there. Luxembourg has also worked with the AIIB to finance and to make some green projects bankable, Gramegna added.
AIIB President Jin Liqun asked rhetorically, “What does 9% growth mean if 3% comes from pollution?”
“We want to mobilize the private sector to promote green development,” Jin said, reiterating his desire for more partnerships between the AIIB and private capital.
Earlier this year, AIIB announced that it has approved $500 million for a managed credit portfolio, to develop debt capital markets and promote Environmental, Social and Governance (ESG) principles in fixed-income investments in Asia.
This portfolio will comprise corporate bonds issued by infrastructure-related issuers, including quasi-sovereign bonds and green bonds where proceeds are directed to sustainable infrastructure. Bonds purchased under this portfolio will be assessed according to ESG principles, the multilateral development bank said.
This will create a new asset class measured by ESG standards, Jin explained. ESG is now an important determinant in investment decisions, and investors which do not subscribe to ESG standards risk being “dumped by the market”, he warned.
Green bonds, however, have fallen short of international expectations, said Saeb Eigner, chairman of the Dubai Financial Services Authority.
There is insufficient clarity on the definition of what a green bond actually is. “The more clarity you provide, the bigger the market will become. We need to measure the performance and impact of green finance,” he said.
Dubai is one of the world’s largest listing venues for Sukuk transactions, with over $60 billion listed. And the Middle Eastern state is now developing green products in tandem with the Sukuk market, Eigner said.
Gramegna said that the Luxembourg government is drafting regulations to define in more detail what is meant by the term green, to avoid “greenwashing”, or labelling a financial product as green when it has little environmental function.
