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China’s ZGH prints US$400mn offshore green bond

China’s ZGH has issued a green bond with an SBLC likely designed to attract strong investor demand.

May 23, 2016 // 6:08PM

Zhejiang Geely Holding Group (ZGH) has issued the green bond on the offshore market for an automotive company. A source speaking to Bonds & Loans said that the deal was an interesting development, as it was unusual to have a Chinese company raising money on the international capital markets for a subsidiary in London.

The green bond is yet another in a growing market where emerging markets, especially China, are leading the way in.

“This is an innovative use of debt financing from a China based company that will have a great environmental benefit on London,” said Sean Kidney, CEO of Climate Bonds Initiative.

The corporate raised US$400mn from the international capital markets, with the proceeds destined to finance the development of zero-emission vehicles by its London based subsidiary the London Taxi Company (LTC).

The senior unsecured bonds, issued through LTC, have a fixed interest rate of 2.75% and a 5 year tenor. The final orderbook for the bond reached US$2.3bn. Pricing was tightened by 30bp to 140bp over Treasuries.

The green bond is the first of its kind to come with a standby letter of credit (SBLC), which was provided by the London branch of the Bank of China.

The SBLC enhanced the bond’s credit rating. The transaction received an A1 rating from Moody’s, whilst Fitch and S&P Global Ratings both rated the deal A. This is opposed to ZGH’s credit rating of Ba2 by Moody’s and BB+ by S&P Global Ratings and Fitch.

“It is likely ZGH wanted to reassure the markets as they are not an established name in the West, which is why the bond came with the SBLC,” noted the source.

Roughly 88% of the demand for the bond came from Asia, with 54% coming from banks. Joint global coordinators on the bond included the Bank of China, Bank of America Merrill Lynch, Societe Generale and Barclays.

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