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China dominates as ESG debt market broadens
Honouring the winners of The Asset Triple A Sustainable Capital Markets Awards 2021
The Asset 18 Jan 2022

From just US$8.48 billion in 2016, the issuance of ESG-labelled bonds – green, social, sustainability and sustainability-linked – in Asia, outside of Japan and Australasia, surged to US$82.50 billion in 2021. In fact, the 2021 volume was more than double the 2020 amount of US$40.28 billion.

While green bonds continue to proliferate and remain the growth driver of the ESG debt market, the emergence of sustainability-linked bonds (SLBs) has broadened the market for issuers, whose coupon payments to investors are linked to achieving – or not – of their sustainability performance targets. An SLB is usually linked to reducing an issuer’s greenhouse gas emissions intensity or achieving a certain percentage of renewable energy consumption at a certain period of time. If it fails, the coupon will step up by 25bp until the bond matures.

According to Refinitiv, an LSEG business, China dominated the ESG-labelled bond issuance in 2021 as it accounted for US$35.18 billion, or 42.6% of the total volume, and the amount was more than twice the 2020 figure of US$16.06 billion. South Korea came next with US$18.88 billion, followed by Hong Kong with US$10.9 billion and India with US$9.44 billion – with each of them also recording huge increases in their issuances compared with 2020.

China’s dominance was reflected in The Asset Triple A Sustainable Capital Markets Awards 2021 in which Chinese financial institutions and corporates showcased their deals that defined the sustainable financing market during the review period. In the first deal of its kind globally, Bank of China (London) printed in October the inaugural sustainability re-linked bond (SRLB), which introduced a broader investor base to the sustainability-linked loan market, linking financial resources between the global bond market and the loan market.

Another Chinese quasi-sovereign bank, China Construction Bank (CCB), priced on the same date of April 15 2021 three different types of ESG-labelled bonds – sustainability-linked, green and transition – in three currencies through its three branches. CCB (Hong Kong) arranged a US dollar green bond in two tranches of US$600 million for three years and US$550 million for five years, while CCB (Luxembourg) printed a €800 million (US$909 million) senior green bond. CCB (Singapore), on the other hand, priced a transition bond amounting to 2 billion yuan (US$315 million).

ICBC likewise raised sustainable financing through its multiple branches as it printed senior green bonds in four different currencies on October 21 2021. ICBC (Singapore) raised US$1.05 billion, ICBC (Hong Kong) US$1 billion, ICBC (Luxembourg) €500 million, ICBC (London) £250 million (US$342.50 million) and ICBC (Macau) 2 billion patacas (US$249 million). This was the largest-ever offering of green bonds from any Chinese bank in history and all tranches were priced with negative new issue concession across all currencies.

Another impressive issuer in 2021 was the HKSAR government, which tapped the green bond market in three occasions in various currencies during the year in a demonstration of its continuing commitment in promoting sustainable development. It first accessed the market in January with a multi-tranche offering totalling US$2.5 billion and then returned to the market in November with a US$3 billion equivalent transaction that included its inaugural euro issuance – achieving low levels of funding cost in absolute terms despite market volatility. About a week later, it continued to ramp up its green bond offering with a two-tranche 5 billion yuan deal – setting an important new benchmark for the offshore renminbi market.

The South Korean issuances were led by the sovereign with a €700 million zero-coupon green bond – the first euro-denominated sovereign green bond out of Asia. It was issued at a negative re-offer yield and achieved the lowest issue spread for a euro issuance out of Korea. In another first, Kookmin Bank launched a €500 million trade in the first euro green covered bond out of Asia-Pacific, while Shinhan Card priced its first Formosa social bond amounting to US$300 million, becoming the first issuer to list a social Formosa bond on the Taipei Exchange.

Outside of the sustainable financing landscape, the most outstanding deals in 2021 included the €4 billion bond arranged by China’s Ministry of Finance (MoF) in November. The three-tranche offering achieved tight pricing as it refreshed its euro credit curve and it included new maturities. This deal followed the MoF’s US dollar issuance in October in four tranches totalling US$4 billion, which attracted an order book of US$23.2 billion.

The government of Mongolia also made a strong return to the bond market with a US$1 billion deal to fund a concurrent tender offer, which achieved its objectives of reducing refinancing risk by terming out the 2022 and 2023 bond maturities, optimizing the maturity profile and reducing funding cost.

For the complete list of Sustainable finance deals of the year, please click here.

For the complete list of Outstanding deals of the year, please click here.

An awards ceremony will be held sometime in 2022. Please reserve your place by contacting events@theasset.com.

Conversation
Abhishek Tyagi
Abhishek Tyagi
Moody's Investors Service
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Shantini Nair
Shantini Nair
director, senior investment specialist
HSBC Asset Management
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