ABC in $1b maiden green bond issue

China's fourth-biggest lender makes its market debut, paving the way for more environmental-friendly issuance.

Agricultural Bank of China, the country's fourth-largest lender by market value, issued its first-ever green bond on Tuesday, raising almost $1 billion as part of a broader Beijing-orchestrated campaign to tackle pollution and promote renewable energy.

Asian issuance of so-called green bonds – fixed-income instruments that are sold to help fund environmentally friendly projects – is a fast-growing young market, buoyed mainly by Chinese and Indian companies. Prior to ABC's market debut $2.1 billion had been raised year-to-date from eight deals compared with $1.2 billion and four transactions across all of 2014, according to Dealogic. 

ABC, which is rated A1/A/A, sold the bond in three tranches, including a $400 million three-year note, a $500 million five-year bond, and a Rmb600 million ($95 million) two-year issue, according to a term sheet seen by FinanceAsia.

ABC priced its three-year and five-year dollar offerings at US Treasuries plus 120 and 140 basis points, respectively. That is after tightening both deals by 20 basis points to five basis points either side of Treasuries plus 125bp and Treasuries plus 145bp, respectively.

The renminbi-denominated bond was priced to yield 4.15% after guidance was tightened to 4.2% from an initial 4.45%.

The Beijing-based lender attracted an order book of over $4 billion for the US dollar tranche. It also Rmb5.5 billion worth of demand for the renminbi part, matching the order book China Construction Bank achieved with its straight renminbi bond issue on Monday as investor confidence in China slowly recovers after a volatile few months' trading. CCB raised Rmb1 billion, paying a coupon of 4.3% on a two-year note issue.

"The ABC deal captured demand from a lot of bank treasuries in Asia, mainly from the Chinese commercial banks," said a banker familiar with the bookbuilding process.

Syndicate banks said the closest comparable to ABC’s three-year US dollar bond is its existing 2% May 2018 paper, which traded at a G-spread of plus 115 basis points, while its existing 2.75% May 2020 note is the best gauge for its five-year paper.

According to Mizuho Securities, fair value for Tuesday’s ABC deal is around Treasuries plus 120bp for the three-year bond, Treasuries plus 140bp for the five-year paper, and 4.2% for the renminbi-denominated tranche.

Some credit analysts said ABC's latest dollar tranches looked more attractive than its renminbi offering due to an expected compression of cash spreads in Asian dollar credits as investors become increasingly comfortable with putting cash in the bond market.

“A US interest rate hike no longer seems imminent and the global supply in US dollar bonds could undershoot market expectations,” Mark Reade, a credit analyst at Mizuho Securities, wrote in a note.

ABC International, Barclays, HSBC, and JP Morgan were the joint global coordinators and bookrunners of the transaction. Other bookrunners included Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley, Standard Chartered, and Wells Fargo Securities.

Growing interest

Bankers said China, which is scrambling to improve its environmental and pollution problems, is likely to be the key driver of green bond issuance after wind energy firm Xinjiang Goldwind Science & Technology issued the country's first green bond in July, raising $300 million in the process.

“There is a growing focus on green finance initiatives in China after the Chinese central bank suggested setting up a green financial system to help contain the cost of pollution," Mark Follett, the head of north Asia debt capital markets at JP Morgan, said.

The People’s Bank of China released a report outlining steps to create a green finance system to tackle the twin challenges of dwindling natural resources and high pollution levels, according to Moody’s, citing local media reports.

The Chinese government also plans to invest 3% of its annual GDP in the green sectors in China, spending about Rmb2 trillion or $323 billion per year for the next five years.

“Giving out more tax incentives for issuers may spur interest in green bond issuance,” Follett said.

Approximately $7.8 billion in outstanding Chinese corporate bonds are linked to green themes, according to the Climate Bonds Initiative, a London-based industry group. Many of these are high-yield notes or convertible bonds issued by solar photovoltaic and wind turbine manufacturers.
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