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CAPCO prices third energy transition bond
Proceeds earmarked to fund construction of new combined cycle gas turbine unit
26 Feb 2021 | Chito Santiago

Castle Peak Power Company (CAPCO) priced on February 24 its third energy transition bond amounting to US$300 million, demonstrating its continued support to Hong Kong’s lower carbon future.

The Reg S 10-year deal was priced at 98.727% with a coupon of 2.125% and re-offer yield of 2.268%. This was equivalent to a spread of 87.5bp over the US treasuries, which was in line with the final price guidance and 37.5bp tighter than the initial price range of 125bp area.

The new bond was issued under the climate action finance framework (CAFF) of Castle Peak’s parent company CLP Holdings and the transaction recognizes the growing importance of energy transition bond to ensure what the company describes as meaningful action on climate change in Asia.

In executing the transaction, CLP deputy chief financial officer Nicolas Tissot notes the company has been a keen adopter of sustainable finance instruments and this bond offering solidifies its strong commitment towards supporting Hong Kong’s transition to a low-carbon economy through its operations and financing requirements.

The bond proceeds will be used to finance the construction of a new combined cycle gas turbine (CCGT) unit at Black Point power station in Hong Kong, following the commissioning of CAPCO’s first CCGT unit in 2020. With the first CCGT unit going into operation, CLP significantly increased the proportion of gas-fired generation and achieved the target of generating about 50% of its electricity from natural gas in Hong Kong last year.

The second CCGT unit further demonstrates CLP’s commitment in reducing carbon intensity while ensuring a reliable and affordable supply of electricity to the territory. The two CCGT units will further support CLP’s decarbonization plan, which includes retiring coal-fired generating units at the Castle Peak power station.

“As we transform into a utility of the future, we are progressively decarbonizing our portfolio of generation assets and evolving our business model to support our customers to improve energy efficiency,” says CLP Power Hong Kong managing director T K Chiang. “While we are facilitating local renewable energy development, we believe natural gas will continue to play a key role in Hong Kong’s energy transition.”

CAPCO launched its inaugural energy transition bond under the CAFF in July 2017 amounting to US$500 million to fund the construction of the first CCGT unit. The second was issued in June 2020 amounting to US$350 million to finance the construction of an offshore liquefied natural gas (LNG) receiving terminal in Hong Kong waters and its associated subsea pipeline and gas receiving station.

The latest transition energy bond, issued through CAPCO’s wholly-owned subsidiary Castle Peak Power Finance Company, attracted a total demand of US$1.4 billion from 65 accounts. In terms of geographic distribution, 93% of the bonds were sold in Asia and 7% in Europe. By type of investors, fund managers drove the deal as they accounted for 53% of the paper, while insurance companies, pension funds and central banks took 31%, banks 16% and private banks 1%.

HSBC acted as the CAFF structuring adviser, as well as a joint bookrunner and a lead manager along with ANZ, Credit Agricole CIB and Mizuho Securities. DNV GL was the second party opinion provider.