Southeast Asian Borrowers Can Expect Lower Yields by Going Green
Southeast Asian Borrowers Can Expect Lower Yields by Going Green
(Bloomberg) -- Southeast Asian borrowers are learning a lesson that global bond issuers are also discovering: it pays to go green.
Borrowers in the region could secure yields that are 7 basis points lower if they sell green notes as demand outpaces supply, said Cedric Rimaud, Asean program manager at Climate Bonds Initiative, citing a study by the Asian Development Bank. That benefit widens to 15 basis points if the notes are certified by CBI, a nonprofit organization that seeks to mobilize bonds for climate change solutions, he said.
“When it’s a first issue, it’s not immediately obvious that the yield is better,” Rimaud said in an interview in Kuala Lumpur. “But what we tend to see is as issuers come back to the market and start to build that trust with investors, then we do see some benefits in terms of pricing.”
More and more Southeast Asian issuers such as Bank of the Philippine Islands and the Indonesian government have opted to sell green bonds recently. Such debt could help the region fund its infrastructure needs, estimated at $2.8 trillion by the ADB, as more energy-efficient transportation projects such as light railways are a natural fit, Rimaud said on the sidelines of CIMB Group Holdings Bhd.’s Cooler Earth Summit.
Rising issuance from the region comes as global sales of green notes are set to reach $350 billion to $400 billion next year, according to CBI, from $147 billion so far this year. The growth in demand can be seen by the fact that the world’s biggest investors including Japan’s state pension fund and Denmark’s $450 billion pension industry have pledged to pour more money into green investments.
Bank of the Philippine Islands recorded the country’s first negative yield by selling bonds with environmental benefits in August, while Indonesia attracted 29% more demand than usual when it sold the world’s first green sovereign bonds last year, Rimaud said. In 2017, Malaysia saw the first offering of green debt that comply with Islamic principles.
CBI is also encouraging sectors including banks, agriculture and power producers to consider issuing debt earmarked for environmentally-beneficial projects.
“Sectors that are truly green can issue green bonds, that’s relatively easy,” he said. “What is more difficult is bringing in businesses that are not green to transform themselves into processes that are not harmful to the environment.”
To contact the reporter on this story: Yudith Ho in Kuala Lumpur at yho35@bloomberg.net
To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum, Finbarr Flynn
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