The Bank of China will soon be issuing a covered green bond on the London Stock Exchange through its London branch.
A director of research on green financing noted that the G20 announcement was a very significant statement of intent from China with regards to green financing.
“However, it will be interesting to see whether the global investor community was paying attention or not.”
The transaction is likely to garner significant interest, because the Bank will further enhance the credit of the bond with other Chinese green bonds already on its balance sheet.
The covered structure of the green bond will likely add to the issuance’s appeal because it increases the ratings of Chinese green bonds, opening them up to the growing number of climate-focussed international investors.
The director of research also noted that the ‘covered’ aspect of the bond would make investing slightly easier, making the bond a more ‘sellable’ proposition.
“I would expect the take-up of the issuance to be pretty aggressive, and I would be surprised if it was not fully subscribed very quickly,” he said.
The fact that the Bank of China’s bond will be listed on the London Stock Exchange is a further indication of the international reach it is hoping to achieve through the issuance.
China is the second or third largest issuer this year of green bonds (depending on either international or official Chinese criteria for qualifying assets), but will likely be the largest by year's end.
“China will eventually become the biggest player in the global green bond market. They are likely to go hard at this market and I would expect to see a lot of issuance in the coming months,” said the director of research.
Deal flow is growing nicely. Just this week Datang Corp Renewable Power Co issued a privately placed CNY1bn (US$150mn) 5-year green bond at a yield of 3.5%.
Much of this is driven by the need to tackle climate issues. Annual investments of between US$320-US$640bn will be needed to address climate change. The government is set to issue RMB300bn (US$46bn) alone by the end of this year, which is already more than the total global amount issued in 2015.
In addition, according to a recent note from CBI, China has 36% (US$246bn) of all outstanding ‘climate-aligned’ bonds - bonds which are invested in assets consistent with a low carbon economy but that are not necessarily labelled green.
To maintain green financing, the Chinese government predicts that 85-90% of the annual amount of investment needed will come from the private sector. To this end, the country has issued a number of policy support measures such as opening up the Chinese interbank bond market to foreign investors in February.
More recently, the People's Bank of China (PBOC) and six other central authorities in China announced they are working to set up guidelines for green financing that would help the country's organisations become more sustainable through the issuance of green bonds and similar instruments. Regulators are also mulling the introduction of green insurance and environmental rights trading markets.