THAILAND's domestic bond market is set to emerge as a rich source of sustainability-linked primary paper, a dynamic which has been underlined by oil and gas major PTT’s innovative plan to launch green bonds under the rubric of the Climate Bond Initiative’s (CBI) land conservation and reforestation issuance categories.

Issuance in the green bond category will come alongside a conventional bond offering; subscription runs between July 20 and 23 with an offering pitched at three and seven years respectively, targeted to raise 15 billion baht (US$472.21 million) in total.

Climate change “purists” who eschew the concept of the transition bond, whereby companies in pollution-producing industries raise funds for their transition from agents of global heating to climate change champions, will no doubt sniff at the plan, which seeks to raise 2 billion baht for the green portion and 13 billion baht for the conventional piece.

These purists view the concept of a “green petrochemical refining company” as an oxymoron. And yet it is not, although it is tempting to view transition promises with their typical drawn-out timelines ― many plans target a 30-year shift from “brown” to “green” industry ― as token gestures while all along the polluting continues apace.

A clear-edged transition model for other fossil fuel operatives to consider adopting was provided at the end of last year by Spanish oil major Repsol, which declared its intention to be a net-zero carbon emitter by 2050.

To achieve this goal, it will increase capex spending on renewables, recalibrate industrial refining processes to emit far less C02  ― a key process is the use of green hydrogen at its refineries ― with targeted reductions of 10% by 2025, 20% by 2030 and 40% by 2040, and executive compensation tied to carbon emission reduction. 

While PTT has not set a target to become a net-zero emitter, it has unveiled targets in relation to its climate change strategy which are aligned with the United Nations’ sustainable development goals (SDGs) and fall within the Paris Climate COP 21 pledge made by Thailand to reduce emissions by 20-25% by 2030.

The company has been involved in reforestation in Thailand since 1994 under its Reforestation and Ecosystem Institute and its replanted areas can absorb up to 2.2 million tonnes of CO2 per annum, fitting into the company’s strategy of establishing climate change mitigation vehicles as it embarks on its green transition. 

A successful print will represent the first issuance under the Climate Bonds land conservation and restoration criteria, which were established in late 2018.

In all this, the Thai bond market has the potential to become a rich source of green and sustainable paper denominated in local currency; Thai Military Bank pioneered the space domestically in 2018 and five issues followed from names such as Kasikorn Bank, BTS Group Holdings and Energy Absolute.

Thailand’s Securities and Exchange Commission has got the green bond bit between its teeth with a project to establish a local third-party verifier ongoing (the World Bank is consultant) and the regulator suggested that as many as 10 issuers may print local green bonds this year.

Certainly the domestic rates backdrop is auspicious, driven by the Bank of Thailand’s decision in May to cut policy rates by 25 basis points to a record 0.5% low in response to the economic fallout from Covid-19, and rumours persist that the central bank will resort to quantitative easing as a stimulus measure.

In response, two-year Thai government bond yields have collapsed 70bp this year, to just 0.46% ― the fourth lowest yield in like-tenor Asian govvies after Japan, Hong Kong and Singapore whilst the 10-year yields a scant 1.23%.

Against a backdrop of ample domestic liquidity and buying interest among foreign investors attracted by the alpha upside offered by the Thai baht which has lost around 7% since Covid-19 hit  ― to say nothing of the rampaging bid globally for ESG-focused issuance ― the attraction for potential Thai green issuers is consummate. 

PTT is looking to print at 2.25% on the green three-year tranche and at 2.85% on the seven-year and hopes to catch the wave of demand seen on its jumbo multi-tranche 20-billion-baht offering which priced in June and was overwhelmed with demand, building four times book cover and the significant scaling back of order circles for the deal, particularly from private bank HNWI clients.

PTT’s leading example onshore in the environmental stakes has been warmed to by the Kingdom of Thailand, which will conduct roadshows on July 29 for a planned baht-denominated sustainability bond. The presentation is being handled by Bangkok Bank, Bank of Ayudhya and Standard Chartered Bank Thai. Issuance will represent the Kingdom’s debut issuance in the sustainability arena.