There’s no question the Asian green debt market has gone from strength to strength — not just in terms of volumes of G3 green bond issuance but also diversity, because while China and India have continued to lead the way, 2017 offered up more to the market.
Singaporean issuers were active for the first time, both in the local currency as well as US dollars. CDL Properties became the first name from the city-state to opt for the green format, raising S$100m from a 1.98% 2019. Three months later, DBS Group Holdings pioneered with Singapore’s inaugural international green bond, printing inside the curves of its global peers.
Investors have also been spoilt for choice when it comes to currency. Green bonds have been sold in Australian dollars, Hong Kong dollars, Japanese yen, Malaysia ringgit, Singapore dollars and Turkish lira this year by Asian borrowers — in addition to the previously seen renminbi, Indian rupee, euro and US dollar deals.
Regulators too have stepped up their game in encouraging more issuance. For example, the Reserve Bank of India is coming up with green bond guidelines and a framework, while the Securities and Exchange Board of India put in place disclosure requirements in June for the issuance and listing of green debt. Sebi had issued green bond guidelines in January 2016.
The Indian Green Bonds Market Development Council, a public-private initiative formed late last year, launched its 2017 programme, while in Singapore, the monetary authority announced a grant scheme in March to boost green issuance.
While these are all good signs, they are not nearly enough. True, international accounts have been supportive when it comes to Asian green bonds, allowing the likes of China Development Bank to allocate close to half of its maiden green trade to investors in Europe.
But what Asia is still lacking is support from home grown, green-dedicated funds, which have a buy-and-hold nature and are less sensitive about pricing.
International Finance Corp and Amundi’s $2bn Green Cornerstone Bond Fund created in April — to buy green bonds issued by emerging market banks — was undoubtedly a landmark. In addition, deals such as the medium term notes sold by Hong Kong’s MTR Corp and Hong Kong and China Gas Company saw Asian investors come in, but the overall development of green dedicated funds in Asia has been slow.
The lack of strong green buy-side backing saw investors going into issuance from Rural Electrification Corp and Modern Land (China) Co, but not for their green features. Meanwhile, Concord New Energy Group, the first non-financial issuer of bonds in China’s domestic green market in April 2016, was forced to postpone its green dollar debut last month when investors failed to support it in a down market.
Also, there is no clear pricing advantage for Asian issuers to go down the green route — in part due to the absence of home-grown green funds.
Perhaps more importantly, Asia hasn’t truly taken off because many in the region still view green as something nice-to-have, instead of a must have.
Green is not a natural funding choice for many issuers, and in some cases is a last minute tack-on label to transactions. Issuance is also sometimes a public relations exercise, a marketing trick, or even part of a political agenda, while the problem of green-washing deals continues to prevail in the region.
What is all the more concerning is that the challenges today are largely similar to the obstacles facing the asset class a year ago. Green issuance may have grown, but the level of the market’s development hasn’t — and that is a problem.