The Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR Government) on November 17 priced its third green bond amounting to US$3 billion equivalent, including its inaugural issuance in the euro bond market, achieving very low levels of funding cost in absolute terms, despite recent market volatility.
The Reg S deal comprised of a 10-year tranche amounting to US$1 billion, which was priced at 99.046% with a coupon of 1.75% to offer a yield of 1.855%. This represented a spread of 23bp over the US treasuries, which was 2bp tighter than the final price guidance of 25bp area (+/- 2bp) and 27bp inside the initial price range of 50bp area.
The euro tranche consisted of a five-year bond amounting to €1.25 billion (US$1.42 billion), which was priced at 0.019% or 10bp over mid-swap. This was 20bp tighter than the initial price thought of 30bp area. The other tranche was for 20 years amounting to 500 million euro, which was priced at 1.059% or 65bp over mid-swap. This was 10bp back of the initial price thought of 75bp area.
The 20-year tranche is the longest euro-denominated green bond issued by an Asian government to date, as well as the HKSAR Government’s inaugural offering of euro-denominated bonds, setting an important new benchmark for potential issuers in Hong Kong and the region.
In marketing the transaction, the HKSAR Government conducted a virtual roadshow on November 15 and 16. The transaction was well-received by a diverse group of global conventional and green investors with the 10-year US dollar tranche attracting a final order book of US$2.9 billion. In terms of geographical distribution, 72% of the bonds were allocated in Asia and 28% in Europe. By type of investors, banks accounted for 63%, public sector 21%, fund managers 10% and insurance companies 6%.
The euro tranches garnered total orders in excess of €2.2 billion, with 67% of the five-year bond sold in Europe and 33% in Asia. Banks took 34% of the paper, followed by fund managers 28%, public sector 24%, private banks 12% and insurance companies 2%. For the 20-year euro tranche, 89% of the bond was distributed in Europe and 11% in Asia. Fund managers were the biggest buyers with 63%, insurance companies 28%, central banks 5% and banks 4%.
Financial Secretary Paul Chan notes the strong demand for the transaction, underscoring investor confidence in the territory’s economic fundamentals as well as their support of the efforts in combating climate change and achieving carbon neutrality. “The inaugural euro-denominated offering has also allowed us to reach out to a new group of investors, drawing their attention to the sustainability journey of and financial opportunities in Hong Kong, providing momentum for further growth of our financial market,” he says.
HSBC co-CEO for Asia-Pacific David Liao says the debut euro-denominated tranche further diversifies HKSAR Government’s green bond investor base and will be key to funding its various green initiatives, including the recently announced Climate Action Plan 2050. “Sustainable finance markets in Asia-Pacific have evolved at an encouraging pace and are well-placed to support efforts to quickly decarbonize economies across the region, as evidenced by other recent euro-denominated green bond issuances from the governments of Indonesia and the Republic of Korea,” he points out.
The green bonds are being issued under the global medium-term note programme dedicated to green bond issuances established earlier this year. Proceeds raised under the programme will be credited to the Capital Works Reserve Fund to finance or refinance government projects that provide environmental benefits and support the sustainable development of Hong Kong.
The HKSAR Government published its green bond framework in 2019, which sets out how green bond proceeds will be used to fund projects that will improve the environment and facilitate the transition to a low carbon economy. Vigeo Eiris has provided a second-party opinion for the green bond framework. The green bonds have also received the green finance certificate (pre-issuance stage) from the Hong Kong Quality Assurance Agency.
Crédit Agricole CIB and HSBC acted as joint green structuring advisers, global coordinators, bookrunners and lead managers for both US dollar and euro tranches. Citi and J.P. Morgan were the joint global coordinators for the US dollar tranche and euro tranche, respectively, as well as joint bookrunners and lead managers along with BNP Paribas, Société Générale and UBS.