Sovereign green finance

HK to issue first sovereign green bond

The upcoming launch of Hong Kong's first sovereign green bond and recent green measures will grow the city's green financial market in scale and maturity.
Hong Kong will soon issue its inaugural sovereign green bond.
Hong Kong will soon issue its inaugural sovereign green bond.

The Hong Kong government’s inaugural green bond and its recent green finance measures will grow and mature the Asian financial hub’s green bond market.

The Hong Kong government’s Reg S/144A senior unsecured green bond is expected to price as early as Tuesday. Initial price guidance for the 5-year paper is around 50bp over equivalent US Treasuries. With 5-year Treasuries yielding 2.21% on Tuesday, the initial price guidance of the Hong Kong government paper equates to 2.71% area.

S&P Global and Fitch are both expected to rate the paper AA+, in line with the sovereign. 

This is one of Asia’s first sovereign green bonds. Indonesia sold Asia’s first sovereign green bond in February last year with a 5-year tenor and coupon of 3.75%. The $1.25 billion paper, which is also Shariah-compliant, has a yield of 3.38% and is currently trading at a mid-point of101.29, according to data from Bloomberg. The Indonesian green bond has a credit rating of BBB- and BBB from S&P and Fitch respectively, lower than the rating for the Hong Kong counterpart. 

More appropriately, Hong Kong-listed developer New World China Land sold a $310 million 5-year US dollar green bond at 4.75% in December. The paper priced at 99.377 to yield 4.892%. The paper is now trading at 103.55 to yield 3.89%, accoding to data from Bloomberg. 

A Hong Kong sovereign bond will be helpful in terms of setting expectations in the markets for further issuances by corporates.

“It will boost the liquidity of the green bond market, which is crucial,” said Ivy Lau, general manager of the China office of the Climate Bonds Initiative (CBI), an international nonprofit organisation which promotes green investments.

The roadshow for this bond began on May 10. The value of the first Hong Kong government green bond is not known, however, the Hong Kong government plans to issue a total of HK$100 billion ($12.7 billion) of green bonds in the next few years.

The green external reviewers of this bond are international green rating agency Vigieo Eiris and the Hong Kong Quality Assurance Agency. 

Bond proceeds will be used to finance and/or refinance projects that will provide environmental benefits and support the sustainable development of Hong Kong, according to the term sheet.


In early May, the Hong Kong Monetary Authority (HKMA) unveiled measures on green finance and sustainable banking. The first phase of these measures includes developing a framework to assess the “Greenness Baseline” of individual banks. The HKMA will provide technical support to banks in Hong Kong to help them understand the green principles and methodology in the baseline assessment.

“Trying to set up a framework to assess banks’ Greenness Baseline is clearly a significant development. It helps banks to identify the green assets on their balance sheets, an exercise that is conducive to banks' future capital raising through green bonds,” Lau said.

If there was no guidance on green assets, banks would have no idea what assets can be accepted as green, Lau explained.

As part of these measures, the HKMA will give priority to green and Environmental, Social and Governance (ESG) investments, if the long-term return is comparable to other investments on a risk-adjusted basis. The HKMA has already incorporated ESG factors in its credit risk analysis of bond investments.

“Hong Kong is gearing up its efforts in green finance and positioning the city to be a market leader in ESG,” said Anna-Marie Slot, a partner at international law firm Ashurst.

By developing sustainable and green standards that banks will be assessed on, the HKMA will focus the banking industry on the role it has to play in creating a sustainable future, she added.

Last year, green bond issuance in Hong Kong totaled $11 billion, nearly quadruple the $3 billion issued in 2017, according to the Hong Kong government. Non-Hong Kong issuers accounted for $9 billion of the green bonds issued in Hong Kong in 2018, and of this $9 billion, $7 billion were issued by mainland Chinese entities. 

Credit Agricole Corporate and Investment Bank and HSBC are the green structuring banks for this bond, as well as the joint global coordinators, lead managers and bookrunners.

Also on Tuesday, the Netherland is issuing a 20-year sovereign green bond with a triple-A credit rating, hoping to raise €4 billion to €6 billion, which will be increased to at least €10 billion over the coming years. It is the first AAA rated county to do so. 

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