Advanced Semiconductor Engineering has sold Asia’s first corporate green bond, a $300 million three-year debt offering, which should encourage others with environmentally sustainable projects to tap global capital markets at much more competitive funding levels.
Although Europe and the US are the pioneers in sustainable financing, having issued many of these types of instruments over the past couple of years, Asia is gradually catching up. Syndicate bankers are confident that Advanced Semiconductor’s bond will set the scene for more to come.
“It’s quite clear that having an issuer of this quality come to the market has provided a catalyst for the further development of the green bond market as investor awareness grows,” a source close to the deal told FinanceAsia. “Anybody who has an interest in environmental sustainability and have projects that can be earmarked for these purposes, are encouraged to tap this market.”
Proceeds of Advanced Semiconductor’s bond will be credited to a special account that will support the company’s funding of eligible projects, which could include environmentally certified commercial properties, energy efficiency in manufacturing processes, waste and water management and green product development, according to a term sheet seen by FinanceAsia.
Also, the company’s Green Bond Framework stipulates that investors will receive an annual investor letter including a list of projects financed, a selection of project examples and a summary of its green bond development.
The Export-Import Bank of Korea (Kexim) was the first Asian issuer to raise a green bond in 2013, when it sold a $500 million five-year note, but this was a non-corporate.
This is miniscule compared to the volume of green bonds raised in Europe and the US, with each market generating a year-to-date total of $15.6 billion with 36 deals and $3.6 billion with 10 transactions, respectively, according to Dealogic data.
The company — which manufactures, tests and distributes integrated circuits — launched the Reg S-registered bond on Thursday, right after it completed its Asia roadshow in Hong Kong, buoyed by positive interest from both regional and European investors, according to sources familiar with the matter.
Advanced Semiconductor also benefited from the fact that there has been zero Taiwanese dollar-denominated deals in the market. “Taiwan is certainly a rare jurisdiction and a lot of investors like the Advanced Semiconductor name,” said a separate source familiar with the matter.
Advanced Semiconductor obtained a total order book of $2 billion from more than 120 accounts. Asian investors subscribed to 93% of the company’s paper, while the rest went to European investors, added the source. Fund managers bought 78% of the notes; followed by financial institutions with 11%; insurers and private funds with 7% and private banks with 4%.
Such robust demand allowed the borrower to tighten its pricing by 25bp from an initial price guidance of Treasuries plus 150bp, according to the term sheet.
The nearest comparables for Advanced Semiconductor’s bond were Taiwanese instant noodle manufacturer Tingyi and local electronics manufacturing company Hon Hai Precision’s existing bonds, which mature in 2017 and are trading at a G-spread of 111bp and 97bp respectively.
Syndicate bankers had to factor in the credit rating differentials between Advanced Semiconductor and Tingyi (one notch higher) and Hon Hai (two notches higher), resulting in a fair value of Treasuries plus 126bp and 127bp, respectively, for the Taiwanese company’s new notes.
This indicates that Advanced Semiconductor priced its notes close to par versus these higher-rated borrowers.
Additionally, Advanced Semiconductor’s notes priced deep inside the curve compared to other similarly rated issuers. For example, BBB- rated China Gold International’s $500 million three-year bond priced at Treasuries plus 275bp on July 10.
The last Taiwanese issuer to tap the international debt markets was Taiwan Semiconductor Manufacturing Company, the world’s largest semiconductor manufacturer. It raised a $1.5 billion dual-tranche bond last April.
HSBC was the sole global coordinator and bookrunner of Advanced Semiconductor’s offering. Other joint bookrunners include Citi and DBS.