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Japan and Hong Kong spur green bond market development in 2019

Japan’s issuance jumped to $7.4bn while Hong Kong’s, as a financial centre, fell to $10bn

As Mitsubishi UFJ Financial Group (MUFG) took the spotlight in the Japanese green bond market, Hong Kong is building on plans from the China State Council for it to become the designated green finance centre in the Greater Bay Area.

These are two highlights of papers issued by the Climate Bonds Initiative (CBI) on the green bond market developments in Japan and Hong Kong in 2019.

Massive spike

Japan’s green bond market reached new heights in 2019, jumping a staggering 70% to ¥786.7bn (€6.7bn) from ¥464.4bn a year ago and ranks 2nd in Asia behind China ($30.1bn, €27.8bn), according to the CBI.

Mitsubishi UFJ Morgan Stanley Securities (MUMSS) was the number one underwriter of Japanese green bonds, underwriting a total of 38 worth ¥449.6bn in 2019.

The Japanese securities company of MUFG was followed by Mizuho Securities and SMBC Nikko Securities.

The largest green bond in 2019 was issued by MUFG (€500m/¥60.5bn), CBI’s report said.

MUFG is also the top financial corporate issuer, with ¥216.3bn and ¥87.6bn allocated to energy and buildings, respectively.

In terms of regulatory support, the Japan’s Ministry of Environment (MOEJ) revised its green bond guidelines in 2020 in order to reflect the revision of the Green Bond Principles and green finance trend, CBI said. It also expanded it to include green loans and sustainability linked loans.

There are substantial opportunities for scaling up the Japanese green bond market, such as in the transport sector, CBI noted.

Key highlights of 2019 are:

• Ranking: Japan ranks 7th, globally, in the country ranking.
• Issuers: Government-backed entities Japan Railway Construction, Transport and Technology Agency (¥196.8bn) and Japan Housing Finance Agency (¥70bn) were the top two issuers.
• Use of proceeds: Buildings dominate use of proceeds at 38%, followed by energy and transport at 29% and 25%, respectively
• Certifications: A total of 90% of issuances benefit from a form of external review
• Currency: JPY remained the most popular currency with 88% of total annual issuance, while JPY-denominated deals prevailed at 53% of total issuance.
• Bond size: The $100-500m was the most popular size bucket by volume, while the highest share of the deals by number fall in the USD up to a 100m bucket

Source: Climate Bonds Initiative

Source: Climate Bonds Initiative

Source: Climate Bonds Initiative

 

Hong Kong’s green bond market

Total issuance by Hong Kong-domiciled entities was down slightly to $2.6bn (HKD20bn), a decrease of 5% or $140m on 2018, according to the CBI briefing.

The market also saw the Hong Kong Special Administrative Region (HKSAR) government’s inaugural green bond issuance valued at $1bn, which will mature in 2024.

Eligible project categories under the green bond framework are, among others, renewable energy, energy efficiency and conservation, pollution prevention and control.

Order books exceeded $4bn, more than four times the issuance size, and were received from over 100 global institutional investors, CBI said.

The briefing was produced in partnership with HSBC Group, and supported by the Hong Kong Monetary Authority (HKMA) and the Hong Kong Green Finance Association (HKGFA).

Green bonds arranged and issued in Hong Kong as a financial centre totalled $10bn in 2019, down from $11bn in 2018, according to HKMA methodology.

In September 2019, the HKGFA announced the plan to establish the Greater Bay Area Green Finance Alliance, including Guangdong, Hong Kong and Macau, to facilitate the greening of the region.

Under the plan, Hong Kong is the designated green finance centre, and Macau and the city of Guangzhou are tasked with building a RMB-denominated green finance platform and developing a pilot green finance innovation zone, respectively.

Ma Jun, chairman and president of the HKGFA, said: “As a rapidly growing green finance market, Hong Kong will play a key role in the green development of the Greater Bay Area, including by assisting on green bond issuance and project financing.

“The government’s blueprint for the Greater Bay Area provides a golden opportunity for the green finance sector in the region, and will stimulate further knock-on growth for Hong Kong’s banking, investment management, insurance and private equity industries.”

Sean McNelis, global co-head of debt capital markets at HSBC, explained that “with our global network and expertise, HSBC will continue to support the development of Hong Kong as a global green finance centre in the Greater Bay Area”.

Key highlights of 2019 are:

• Issuers: Issuance from real estate developers remained one of the key drivers for the domestic green bond market. A growing number of real estate developers opted for green loans to finance projects in 2019.
• Use of proceeds: Low-carbon buildings dominated the use of proceeds, growing to almost two thirds (61%), the highest yet.
• Certifications: 85% of issuance has at least one type of external review.
• Currency: 2019 was the first year in which the majority of volume was denominated in the local currency, and the first year since 2016 with denomination in only two currencies (USD and CNY in 2016).
• Disclosure: 81% of Hong Kong green bonds carry post-issuance disclosure, which allows investors to track the allocation of green bond proceeds during the life of the assets or projects financed.

Sean Kidney, chief executive of CBI, commented that despite the covid-19 crisis the “latest briefing reveals that Hong Kong is maintaining its focus on green finance with new policy settings to encourage transition and sustainable finance.

“There is tremendous potential for Hong Kong to play a pivotal role in facilitating green financing of the post-virus recovery and longer term in low-carbon transition investment in mainland China and the wider region.”

Source: Climate Bonds Initiative

Source: Climate Bonds Initiative

Source: Climate Bonds Initiative

Source: Climate Bonds Initiative

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