now loading...
Wealth Asia Connect Middle East Treasury & Capital Markets Europe ESG Forum TechTalk
Asia Connect
Why Chinese banks are steering clear of Australia’s Carmichael coal project
As Adani Enterprises seeks A$2 billion (US$1.51 billion) in outside financing for its Carmichael coal mining project, ICBC and CCB take the unusual step of denying any involvement in the project
Michael Marray 13 Dec 2017

THE growing reluctance of global banks to get involved in coal projects has been underlined by Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) taking the unusual step of publicly announcing that they will not be lending to the Carmichael coal project in Queensland, Australia.

ICBC released a statement denying involvement and emphasizing the importance it attaches to social responsibilities and green financing. CCB has similarly released a statement saying it will not be lending to the project.

The controversial A$16.5 billion (US$12.5 billion) coal mining project is being sponsored by Indian conglomerate Adani Enterprises, which is headed by founder Gautam Adani. Adani has been seeking A$2 billion in outside financing for the first stage, which it hopes to have in place by March 2018.

The Federal Government gave the go ahead for the giant project in late 2015. Adani had hoped for a Northern Australia Infrastructure Fund (NAIF) loan to support the rail line connecting its mines to the port, but some Queensland politicians have opposed any involvement from NAIF. The Carmichael coal project is located around 400 kilometres inland, so its economic viability depends on a new rail section to connect with existing rail links to the coast.

If fully developed, Carmichael would be one of the world’s largest coal mining complexes. Environmentalists are not only concerned with the impact of the mines themselves in the Galilee Basin, but also the vastly expanded Abbot Point deep-water coal port facilities near the Great Barrier Reef, which runs off the Queensland coast.

Adani already owns the Abbot Point Coal Terminal, which it acquired in 2011. Indian billionaire Gautam Adani has said that he is determined to press ahead with the Carmichael coal project, and has targeted 2020 for the first coal production.

Adani has been in talks to bring in China Machinery Engineering Corporation (CMEC) as the main contractor. Signing up with a heavyweight player such as CMEC would usually bring bank debt with it, but the controversy swirling around the project has made some Chinese lenders wary of getting involved.

In recent weeks there had been rumours that major Chinese banks were about to step in with loans, with ICBC being named in some social media posts.

ICBC responded in a statement published on its Australian website on December 3. “We refer to recent media reporting that Adani was seeking financing from China for its Carmichael mine in Queensland, and some social media posts suggesting Industrial and Commercial Bank of China (ICBC) was a possible financier,” the statement said.

“ICBC has not been, and does not intend to be, engaged in arranging financing for this project. ICBC attaches great importance to its social responsibilities and keenly promotes green financing. In Australia ICBC has provided financing to a series of renewable energy projects.”

“This statement is made without any view on or prejudice towards the Carmichael Mine project,” it added. “ICBC’s views do not necessarily reflect those of existing or future clients.”

China Construction Bank (CCB), among the largest bank lenders in the world along with ICBC, has also said that it will not be lending on the project. “China Construction Bank is not involved with, nor considering involvement with, the Adani Carmichael Mine project,” an external spokesperson for CCB in Australia was quoted as saying by local media.

The big Australian banks are also avoiding the project. Westpac, Commonwealth Bank (plus Deutsche Bank) led a bond offering in 2013 to refinance part of Adani's acquisition finance for the Abbot Point Terminal, but are unlikely to get involved in arranging banks loans for Carmichael.

Westpac set out a new policy on climate change earlier this year, which will limit lending to new coal projects. National Australia Bank is also scaling back on loans to coal projects, and will also not back Carmichael.

Commonwealth Bank has told its shareholders to expect its support of the coal industry to decline as it helps finance the transition to a low-carbon economy. In a speech at the Annual General Meeting in November, chairperson Catherine Livingstone said that climate change poses both a business risk and a responsibility for the bank, and noted that the bank’s funding of coal was “comparatively small and has been trending down for some time”.

In a sign of the growing importance of green lending policies, the China-led Asian Infrastructure Investment Bank (AIIB) itself conducted a review this year of its energy lending policy, and takes a highly restrictive view of lending to coal projects.

There are numerous environmental groups and websites that track bank lending to coal projects. And many big investors such as pension funds now file environmental reports which include reviewing shareholdings not only in coal mining companies and coal-fired power producers, but also the banks that lend to them.

Banks are wary of being excluded from pension fund stock portfolios if they are too heavily involved in supporting high profile coal projects. At the moment many big investors, such as Norges Bank Investment Management which manages the Norwegian oil fund, exclude major coal power generating and mining companies. Though banks are not currently included on these lists, they fear that this could change in the future. In the meantime, they fear the reputational risk of large scale lending to coal mines and power stations.

Local media have reported that the Australian government sent an official letter to the Chinese National Development and Reform Commission, setting out where the Carmichael project stands, and confirming that environmental approvals are in place. Such a letter would typically be helpful for a loan application, and Adani may still be hoping to source China Exim Bank debt or other official support.

Conversation
Thomas Walenta
Thomas Walenta
senior investment officer
Asian Infrastructure Investment Bank
- JOINED THE EVENT -
4th ESG Summit - Webinar series
Rising Expectations
Part 2 - Towards a green recovery
View Highlights
Conversation
Thu Ha Chow
Thu Ha Chow
head of Asian fixed income
Robeco
- JOINED THE EVENT -
17th Asia Bond Markets Summit
Resilience in an age of uncertainty
View Highlights