Top Dealmaker: Yamur Munoz, HSBC

Green bonds are well on their way to becoming a mature asset class in the US and Western Europe, but they’re only just starting to take off in Latin America. Yamur Munoz, Director of Debt Capital Markets for HSBC in Mexico, speaks to Bonds & Loans about the progress the country has made in developing the sustainable finance segment and HSBC’s role in bringing green bond issuers to market and helping them overcome some of the asset class’ misconceptions.

Jul 7, 2017 // 12:46PM

What is the outlook for the green bond market in Mexico this year? What are some of the major drivers pushing that market forward?

As this still a nascent market, in terms of number of issuers, we believe one or two more companies could tap the green market in the following months. This year, in contrast to the previous year, we are seeing more demand and more investors interested in green/sustainable/social bonds; as a result of greater demand, issuers can benefit in lower issuance spreads.

In your view, where do borrowers tend to struggle throughout the green bond issuing process -planning, marketing, execution and follow-up? What are some of the ways you’ve seen other issuers overcome those challenges?

We believe that even issuers that do have green related portfolios, plans or pipeline for green project, most of the time, don’t know which of their portfolios can compute as green, or how to segregate it to achieve the green certification. Also, the lack of information on this asset class is a factor as not all companies are aware of green bonds. As time goes by and more issuances come to market this will change but the single most important factor is education and good advice from a regarded and experienced green structuring agent. On that regard HSBC has been crucial on advising its clients in order to achieve the second party opinion green certification in a proper and timely manner.

Is the lack of high-quality data on the impact of these instruments a concern? What role is HSBC playing in helping borrowers in this regard – many of which have not historically had the need to collect the kind of data green bond investors are looking for?

More than lack of high quality data is the dissemination of this information. HSBC has produced good information on this front and has provided it to the potential issuers, but it will take time for more likely issuers to know the green bond market. Additional to information, the issuance size is also important as not all green/sustainable/social institutions have the size and structure that the market requires. Furthermore, an issuer’s credit rating is still the most important driver behind the investor’s decision.

In terms of HSBC’s role, we are the liaison between the second party opinion provider and the issuers. We help them identify the projects that could qualify for a green bond certification and collaborate with the second party opinion provider to structure the documentation that will ultimately accomplish the green bond certification.

Is there a price benefit associated with issuing green bonds?

It’s hard to say with precision if there is a price benefit at this stage. We have seen marginal benefits in the international market in primary issuances, but benefit is typically found in the secondary market. In Mexico, we have seen some advantages in the primary market, but it is hard to pinpoint exactly how significant these are as there are still only very few green bonds in the MXN market.

Is there much scope for borrowers not looking to finance new infrastructure to issue green bonds? What is the ‘limit’ in terms of how proceeds can be used and are there tradeoffs or big challenges associated with widening that scope?

Even though it depends on the issuer, the company can refinance backward debt for up to five years prior to issuance. Additionally, companies can also use the proceeds to finance a green project directly. Most of the issuers do a mix of new project and refinancing and having this flexibility is key for the future of the market.

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