Japan Firm to Sell Bonds With Coupons Linked to Green Goals

(Bloomberg) -- A Japanese real estate developer is planning to sell a bond whose coupon increases if it misses environmental targets, in the first issuance of its kind in the nation.

Hulic Co. plans to offer 10 billion yen ($94 million) of 10-year so-called sustainability-linked bonds in October, according to a filing Tuesday. If the company isn’t able to meet either of its two green goals by 2025, the coupon on the debt will increase by 10 basis points.

One of its goals is to use the funds raised to develop mega solar systems so that all power use at buildings of its headquarters and subsidiaries is sourced from renewable energy. The other is to build a 12-story, fire-resistant commercial facility in Tokyo’s Ginza district made with wood grown in Japan.

Global sales of sustainable bonds in general have jumped this year, rising 27% to $196 billion, reflecting growing investor demand for debt to pay for green and social projects. Italian utility Enel SpA sold euro bonds tied to environmental goals last year.

Hulic’s offering comes after the International Capital Market Association published its Sustainability-Linked Bond Principles in June, a set of voluntary guidelines aimed at developing a market for such notes. Hulic’s bond follows those principles, according to the filing.

More Flexibility

Sustainability-linked bonds give issuers more flexibility on use of proceeds than green notes and social bonds, according to Yosuke Todaka, joint head of products business division at Mizuho Securities Co., one of the underwriters of the Hulic deal.

“Issuers can set their sustainability performance targets as they like, so we can expect more of such issuance from various sectors in the future,” he said.

Hulic also hired Nomura Securities Co., Daiwa Securities Co. and SMBC Nikko Securities Inc. as underwriters.

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