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Green Finance / Treasury & Capital Markets
Sustainability-linked bonds make their mark in Asia
Issuance of new debt instrument surges after being almost non-existent in the region less than a year ago
Daphne Li 15 Nov 2021

This year the marketplace for sustainable finance has never been busier. And a growing number of Asian issuers are turning to a new debt instrument, sustainability-linked bond (SLB), to raise capital for their business activities.

Unlike the more widely known green, social and sustainability (GSS) bonds, SLB provides greater flexibility to issuers in the use of proceeds, while meeting investor demand for alignment with environmental, social and governance (ESG) principles. As the coupon is linked to a set of pre-defined sustainability key performance indicators (KPIs) and targets, the issuer endeavours to meet the targets to avoid paying higher interest.

Alongside other green debt instruments, there is mounting global interest in SLBs this year. The capital raised from SLBs reached US$62 billion in the first nine months, an almost sevenfold increase from US$9 billion for the whole of 2020. The trend continues with SLB issuance forecast to hit US$100 billion before 2022, according to a Moody’s report.

Prior to 2021, SLB was almost non-existent in Asia ex-Japan. In less than a year, SLB issuance in the region has increased to US$7.1 billion, according to Refinitiv. Southeast Asian issuers are piling into the market, accounting for 36% of the total volume raised in the first 10 months of this year.

In July Thai Union, a Thailand-based seafood processor, issued a 5 billion baht (US$152.3 million) SLB with both step-up and step-down facilities, making it the world’s first SLB with a self-imposed carrot-or-stick mechanism in relation to sustainability performance targets.

Another Thai chemical company, Indorama Ventures, issued a triple-tranche SLB amounting to 10 billion baht in November, the largest of its kind in the country. The company pledged to consume 25% renewable electricity in 2030, reduce the intensity of its greenhouse gas (GHG) emissions by 10%, and boost its recycling input of polyethylene terephthalate bale to 750,000 tonnes annually by 2025. Failure to deliver on the promises would require the company to purchase energy attribute certificates or voluntary carbon offsets.

Earlier in September, Singapore-based energy and urban development company Sembcorp Industries raised S$675 million (US$498 million) through an inaugural SLB, in which S$150 million was anchored by the International Finance Corporation.

The coupon on the SLB, which has 10-and-a-half years to maturity, will be stepped up by 25bp from the first interest payment date in 2026 if the company fails to slash its GHG emissions intensity by at least 0.4 tonne of carbon dioxide equivalent per megawatt hour by the end of 2025.

The robust investor appetite for SLBs is expected to unlock a wealth of opportunities for companies willing to align their operations with efforts towards a more sustainable future. To find out more about SLBs and sustainable-linked loans, The Asset Events+ hosts part three of the 16th Asia Bond Markets Summit on 18 of November 2021 at 4.30pm on Rebuilding Economies Through Sustainable Bonds and Loans. To join the sharing of experience with issuers and investors, please click here.

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