Hong Kong’s Link Reit issues US$500 million green bond

Proceeds to be used to refinance existing and future environmental projects

PUBLISHED : Thursday, 14 July, 2016, 10:20pm
UPDATED : Friday, 15 July, 2016, 1:53pm

Property investment giant Link Reit, which has faced a torrent of criticism from politicians and government officials on its profit-driven practise of pushing up rents and driving out small retailers, has become Hong Kong’s first issuer of a so-called green bond to finance projects that help protect the environment.

The US$500 million issuance is a landmark deal for the city, which is catching up on a global trend for green finance.

The sector’s development has been encouraged by the government-appointed Financial Services Development Council (FSDC).

“The net proceeds of the issuance will be used to refinance or fund, in whole or in part, existing and future projects that are eligible,” said a document seen by the Post, prepared by Sustainalytics, which has been hired to review and provide opinion on the bond’s “green” credentials.

Projects eligible for the proceeds include buildings that have third-party verification for meeting “green building” standards, and those resulting in at least a 15 per cent improvement in energy efficiency.

Also acceptable are projects that reduce waste sent to landfill, improve water usage efficiency, promote adoption of low carbon transportation such as electric vehicles, and improve climate change resilience.

Link Reit, one of Hong Kong’s largest landlords and Asia’s largest real estate investment trust, canvassed reaction on Thursday to a possible 10-year green bond, from professional investors in Asia, Europe and North America.

According to a source close to the deal, the offer attracted over US$2 billion in demand, four times the amount offered.

“The pricing was very competitive versus similar existing 10-year bonds trading in the market,” the source said, adding that some 96 per cent of the demand was from Asia – split roughly as 70 per cent from Hong Kong and 30 per cent from Singapore.

The remaining 4 per cent was from Europe, where investors are generally not familiar with Asia’s property firms.

The final interest rate has been set at 145 basis points above ten-year United States government treasuries bonds, well below the original target of 160 basis points. This gives an interest rate of 2.88 per cent for holders of the Link Reit green bond.

The deal’s joint bookrunners are Bank of America Merrill Lynch, Bank of China (Hong Kong),

HSBC and JP Morgan.

Link Reit was recently challenged by Chief Executive Leung Chun-ying and Chief Secretary Carrie Lam Cheng Yuet-ngor, amid mounting public concern about grass-roots retailers being priced out of its wet markets and low-end shopping malls.

Link Reit financial director Hubert Chak hit back by saying it had spent hundreds of millions of dollars annually to fulfil its corporate social responsibility by giving lower rents to social welfare organisations, building barrier-free facilities, arranging community events and reducing emissions.

He said these should be differentiated from social welfare, which is not its responsibility since it is a business.

China’s astronomical rise to become the world’s largest issuer this year has solidified its role as a major player within the green bond space, setting a bullish tone for the overall market
Bank of America-Merrill Lynch report

Green bonds issuance is a growing trend globally, as governments and corporations seek new ways to finance projects that reduce carbon emission linked to climate change, as well as other kinds of environment degradation.

Global green bond issuance could reach US$80 billion to US$90 billion this year, almost double that of last year, bring the total size of the green bond market to US$175 billion to US$185 billion, according to a report by Bank of America-Merrill Lynch, which has handled the issuance of 13 out of the 16 green bonds ever issued in Asia Pacific. Around half of this year’s issuance could come from China.

“China’s astronomical rise to become the world’s largest issuer this year has solidified its role as a major player within the green bond space, setting a bullish tone for the overall market,” the report said.

One of the latest deals is a 3 billion yuan green bond that will go on sale on Monday by Shanghai-based New Development Bank, an infrastructure-focused lender established by the BRICS nations.

FSDC chairwoman Laura Cha Shih May-lung said in March that The Airport Authority and MTR Corporation could take the initiative by issuing green bonds, as the government has been encouraging green financing.

But the source does not expect many Hong Kong companies to issue green bonds, saying there is no interest cost savings for the issuers, which however have to bear extra management and compliance costs.

“Besides corporate image enhancement, there is little benefit in reality … Hong Kong is different from [mainland] China, where the government is actively pushing for green bond issuance,” the source said, adding that the Airport Authority is the only known potential issuer after Link Reit given it has publicly stated it has been studying the feasibility of issuing a green bond.

Meanwhile, Huaneng Renewables, the renewable energy unit of the nation’s largest power generator China Huaneng Group, has become the latest government-administered enterprise to complete the issuance of a green corporate bond.

The proceeds of the of a 1.1 billion yuan bond will mainly be used to repay debt, it said in a filing to the Hong Kong Stock Exchange.