Last week, Shinhan Bank priced a USD 500m issuance, with a ten year maturity, constituting Korea’s first Climate-Bonds-Initiative-Certified green bond.
BNP Paribas, Citigroup, Crédit Agricole CIB, Credit Suisse, HSBC, JP Morgan, and Shinhan Investment Corporation, all acted as joint lead managers across the issuance.
Proceeds from the bonds will be used to refinance existing projects; Seoul Metro Line 9 and the Great Train eXpress (GTX) Line A, both of which involve green finance commitments, with specific criteria on CO2 emission thresholds that contribute towards the market’s net zero target by 2050.
The projects include passenger rail rolling stock, rail transport networks and supporting infrastructure, a spokesperson for Citi confirmed with FinanceAsia.
“The deal team was mandated from late February 2022. In late 2021, the bank planned for Tier 2 issuance as a part of their business plan for 2022, and was able to successfully execute the transaction notwithstanding market volatility,” the spokesperson added.
“Shinhan has traditionally structured their international bond offerings as sustainability bonds aligned with the UN’s SDGs (sustainable development goals). However, this time the bank decided to issue Korea’s first ever Climate Bond certified by the Climate Bonds Initiative, after it confirmed the eligible projects identified to support the transaction would qualify.”
Priced at CT10+ 185 basis points and with a yield of 4.436%, the bonds drew participation from global investors (Asia 59%, Americas 25%, and EMEA 16%), with the majority of interest coming from asset or fund managers (69%), as well as insurers and pension funds (23%).
One anonymous market source close to the transaction confirmed that the orderbook was twice oversubscribed, and fully covered within an hour and fifteen minutes. He attributed the successful, rapid uptake to the issuer’s ability to come to market with such clearly defined targets and climate-focussed incentives.
“In an increasingly crowded sustainable financing market where more than 15% of global bond offerings are marketed with a sustainable finance label, certification and transparency from having identified projects upfront are some of the way issuers can ensure strong investor interest in transactions in volatile markets,” the Citi spokesperson agreed.
Discussing the transaction with FA, Chaoni Huang who heads BNP Paribas’ Asia Pacific Sustainable Capital Markets team confirmed that over 55% of allocation went to Asia based accounts from China, Hong Kong, Indonesia, Korea, Malaysia, Singapore, and Taiwan. The anonymous market source added that 40-45% of these Asian accounts comprised the Asia-based branches of international managers.
Noting how the transaction was underpinned by recent developments in the country such as the Green New Deal initiative – launched in July last year to advance renewable energy and green infrastructure – Huang added that the transaction’s completion represented a significant milestone for the market. “[It] sets the standards for sustainable investments in the region, as investors increasingly look for transparency and accountability in green bond issuances."
Credit Agricole CIB’s executive director of Sustainable Banking for APAC, Carmen Tsang, echoed this view, telling FA, “Investors have learned to look beyond just labels and certifications, and increasingly to demand companies to align their Green Bond programmes with corporate sustainability strategy, particularly global warming limits.”
“For this transaction, Shinhan Bank confirmed its “best-in-class” position in promoting an ambitious climate and sustainability strategy: from being the first Korean Bank to adopt the Equator Principles, to launching its carbon neutrality goal and Science-based Targets (SBTs), is as important as the Green/ Climate Bond label. Shinhan Bank is contributing to develop sustainable finance in Korea with high standards,” she added.
At pre-issuance stage, Sustainalytics worked to ensure the deal’s compliance with requirements under the Low Carbon Transportation criteria of the Climate Bonds Standard. The firm – or another approved verifier – will be required to reassess the projects’ underlying compliance with the targets in the 24 months post-issuance. Part of the transaction requires Shinhan to publish an addendum to its annual earnings material, to include an update on the bank’s progress towards carbon neutrality, which includes ESG compliance.
“The strong response to the transaction is encouraging and we expect other issuers from Korea to likewise issue CBI-certified transactions in response to demand,” shared the Citi spokesperson.
The anonymous source concluded that, while uncertainty and volatility remains in the global economy, the sustainable bond market is on track to surpass the USD 1 trillion threshold in 2022, an increase on the achievement of 2021.
“Investors have capital to put to work, and ESG is not simply a trend – it is a formal component of investor portfolio construction that is here to stay. There is clear appetite among investors to participate in transactions led by strong issuers,” the source said.
Credit Suisse declined to comment on the issuance. HSBC, JP Morgan, and Shinhan Investment Corporation did not respond to requests for comment.
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