Sumitomo Mitsui Banking Corp raised $500 million through the sale of green bonds early on Thursday, becoming the first Japanese entity to issue the environment-friendly debt instruments in dollar form.
SMBC said it plans to use proceeds from the sale to fund new and existing projects that promote renewables and increase energy efficiency.
The Japanese bank may also opt to swap a portion of the dollar-denominated proceeds into Japanese yen, according to a senior banker familiar with the deal.
Funding environmental projects through the sale of fixed-income securities is a relatively new concept in Asia, but the market is growing fast. The region accounts for roughly 9% of global green bond issuance so far this year, more than double the 4% share it had in the same period in 2014, but still dwarfed by the 70% held by Europe (along with Africa and the Middle East, collectively known as EAM), according to data-tracking firm Dealogic.
The first Japanese issuer of green bonds was the Development Bank of Japan, which raised €250 million ($316 million) through a euro-denominated three-year bond in September 2014, Dealogic said.
As a benchmark international bond offering by a prominent Japanese name, the deal was expected to sail smoothly.
“SMBC is a popular borrower in the international bond market, for which institutional investors and insurance companies in the United States and Europe are the major buyers of Japanese paper,” said the senior banker familiar with the transaction, ahead of pricing. “The green bond offering from the issuer reflects its strategy to diversify their funding pool, expanding their investor base."
A growing number of issuers – mostly policy lenders and multinational organisations – have tapped green bond finance for environmentally friendly projects ever since the European Investment Bank sold the first green bond in 2007. Chinese and Indian borrowers have been the most active in Asia, complementing government-driven efforts to overhaul each country's energy and environmental policies.
Beijing said last year that it plans by 2030 to cut greenhouse gas emissions relative to its gross domestic product by 65% from 2005 levels. India in early October said it would reduce its carbon emissions by 35% over the same period.
The volume of green bonds sold globally tripled last year to almost $37 billion, according to Climate Bonds Initiative data, a London-based industry group.