Green bonds update and CGIF guaranteed green bonds

Green bonds update and CGIF guaranteed green bonds

Jay LeePartnerSimmons & Simmons

26 May 2017

Gene ParkGeneral CounselCGIF

© Simmons & Simmons LLP 2016. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

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What we will discuss today

Green bonds

Recent market updates

Case studies - "Climate Bond Award/Euro-money” winning transaction and others

CGIF guarantee structures, benefits and new products

Prospects


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What are Green Bonds

Any type of bond instrument where the proceeds will be used exclusively towards eligible Green Projects

Use of proceeds is described in the Offering Circular and bond documentation

Eligible Green Projects include:– Renewable energy– Energy efficiency– Pollution prevention and control– Clean transportation

Climate Bonds - similar principles to Green Bonds


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Types of Green Bonds

From the ICMA Green Bond Principles

Green Use of Proceeds Bonds – standard recourse-to-the-issuer debt obligation and proceeds linked to the

issuer’s lending and investment operations

Green Use of Proceeds Revenue Bonds– Non-recourse-to-the-issuer debt obligation where credit exposure is to

pledged cash flows of revenue streams

Green Use of Proceeds Project Bonds

Green Use of Proceeds Securitised Bonds


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International standards and regulation on Green Bonds

Standards and Certification

Avoidance of green washing

Solution: minimise issuance costs by adopting a uniform certification scheme

Local standards may be insufficient as international investors must incur additional costs to understand them

Leading international standards:

Climate Bond Standard Green Bond Principles


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Developed by Climate Bonds Initiative, an international, independent non-profit organisation

Provides sector-specific eligibility criteria to certify “climate bonds”– wind, solar and geothermal energy– low carbon buildings and transport– more sectors to come

Climate Bond certified issuer must appoint an approved third party verifier

Climate Bonds Standards Board provides final confirmation

Climate Bond Standard (CBS)


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Developed by the International Capital Market Association (ICMA)

Voluntary process guidelines to recommend transparency and disclosure

Cover 4 core components – use of proceeds – project selection and evaluation – management of proceeds– reporting

ICMA also recommends issuers use external review for the issuance of bonds and disclosure of the results of such external review

Green Bond Principles (GBP)


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Recent market updates New $2bn fund to be launched by the International Finance Corporation (IFC), member of

the World Bank, announced 27 April 2017– The Green Cornerstone Bond Fund, administered by Amundi, is due to be fully green

in seven years and will invest in green bonds issued only by banks from the emergingmarkets.

– The IFC is offering issuers a technical assistance facility designed to enable banks toissue senior debt with the same ease and cost as conventional senior deals.

Europe is ahead of the US in the listing of green-bond funds, and in terms of bothissuance and investor demand.– Several green-bond funds in Europe aren’t open to US investors. That includes the

Lyxor Green Bond UCITS ETF launched in late February by Lyxor AssetManagement, part of the Paris-based Société Générale Group, which just beatVanEck’s GRNB as the world’s first green-bond ETF.

First US listed exchange-traded fund on green bonds launched in March 2017– VanEck Vectors Green Bond ETF was launched to meet growing investor demand for

environmentally focused products.


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More market updates

Overview of the Green Bond Market in China as of January 2017– Approximately RMB83 bn (USD12.6bn) in Chinese green bonds (34% of

total issuance), did not meet international definitions in 2016.– Commercial banks make up the largest proportion of green bond issuance,

making up 82% of all Chinese green issuance in 2016.– The two largest issuers are Shanghai Pudong Development Bank and

Industrial Bank, which make up approximately 43% of all Chinese issuance, and are also the largest green bond issuers globally in 2016.

– The People’s Bank of China estimates that an annual investment of at least RMB2-4tn (USD 320-640bn) will be required to address environmental and climate change issues.


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Transport and Energy are the largest sectors climate bonds

Source: Climate Bonds Initiative 2016


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The majority of bonds have tenors of 10 years or more



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The majority of climate-aligned bonds are between USD100m to 500m in size



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59% to 66% of green bonds have received an external review



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Case studies - "Climate Bond Award/Euro-money” winning Tiwi-Makban/PH transaction

Transaction Summary

Issuer

Guarantors

Aboitiz Power Renewables, Inc.

ADB with risk sharing from CGIF

Bond Type Senior Secured, Partially Guaranteed Bonds

Guarantee Cover 75% (partial) Guarantee of Non-Payment

Distribution Method Private Placement

Issue Size (PHP) PHP 10,700 million (appx USD224 million)

Tenor 10 years

Issue Date 08- Mar -2016

Bondholders' Representative BPI Asset Management & Trust Group

Sole Mandated Lead Arranger BPI Capital


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Case studies

Risk Sharing Structure

Background• CGIF risk-shares the rights and obligations of the fronting guarantor (ADB) on a first loss basis

up to CGIF’s guaranteed exposure of PHP4,687 million (USD 100 million eq). • CGIF is a direct counterparty to major financing agreements with the borrower.

Enhancement on the ADB guarantee by CGIF’s first loss risk-sharing• Increased size amount• Lengthened tenor (5 year to 10 year)• Improved overall deal economics


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Case studies

Execution Highlights

Investor Type Distribution

Institutional100%


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Profile of CGIF


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CGIF’S claims paying ability


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General bond guarantee structure


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Guarantee terms


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Eligibility criteria


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Anticipated CGIF transactions


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Application process


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_______________________________________* Change of issuer of the bonds to PT Professional Telekomunikasi Indonesia became effective 03 August 2016

CGIF guarantee structures, benefits and new products Guarantee transactions


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Issuer Sector Currency / Amount Tenure Issue DateCoupon

(spread over benchmark)

8Vingroup Joint

Stock Company (Vietnam)

Real Estate Management & Development

VND 1,950 bio (USD 87 mio) 5y 18 Feb 2016 7.75%

(+129bps)

VND 1,050 bio (USD 47 mio) 10y 18 Feb 2016 8.50%

(+138bps)

9AP Renewables, Inc.

(Philippines)*Renewable

EnergyPHP4,687 mio(USD100 mio) 10y 8 Mar 2016 Undisclosed

10PT Mitra Pinasthika

Mustika Finance (Indonesia)

Consumer (auto) finance

IDR 140 bio (USD 11 mio) 3y 11 Mar 2016 8.52%

(+55bps)

IDR 160 bio (USD 12 mio) 3y 28 Apr 2016 7.77%

(+55bps)

11Fullerton Healthcare Corporation Limited

(Singapore)Healthcare

SGD 50 mio (USD 37 mio) 5y 7 July 2016 2.45%

(+72bps)

SGD 50 mio (USD 37 mio) 7y 7 July 2016 2.75%

(+84bps)

12 KNM Group Berhad(Malaysia)

(Energy)Energy Equipment &

Services

THB 2,780 mio(USD 78 mio) 5y 18 Nov 2016 3.00%

(+ 112 bps)

_______________________________________* Risk-participation with ADB as the fronting guarantor for a total issuance of PHP10.7 billion (USD 224 million)

CGIF guarantee structures, benefits and new products Guarantee transactions (2)


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Prospects

The general market view is that there are good prospects for the rapid growth of the PRC’s green bond market.

High in volume– It is estimated that China’s green bond market may be worth US$230 billion

in the next five years.

Ahead of the West – China is also known to invest more in clean technology than the US, UK and

France combined. – Further, when launched in 2017 as planned, China’s national carbon trading

scheme may be the largest trading scheme of its kind in the world.


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Prospects Gradual opening of the Chinese markets

– Green bond market growth may also be boosted by the recent opening of the Chinese interbank bond market to foreign investors in February 2016.

Potential for Chinese development banks– The New Development Bank (set up by the BRIC nations and

headquartered in Shanghai) issued a RMB3 billion green bond in the China interbank bond market in July 2016.

– Potential from China’s national development banks (policy banks).

Potential for a sovereign green bond– Due to China’s size and its ambitions in green finance, it could be a potential

candidate for issuing a sovereign green bond.


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Prospects

Moody's Investors Service has reduced its estimate of global green bond issues this year to nearly $120 billion from a forecast in January 2017 of $200 billion as the number of transactions and Chinese and development bank issuance declined.

However, Chinese issuance dropped by over two thirds, the number of total transactions fell and issuance by development banks trailed off.

HSBC predicted in January that the growth in green bond issuance could slow this year to $90-120 billion. Swedish banking group SEB said last month that issuance could amount to $125-150 billion.


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ContactsGene ParkGeneral CounselCGIF

T (+63) 908 899 3916E [email protected]

Mr. Gene Soon Park is the General Counsel and Board Secretary of the Credit Guarantee and Investment Facility (CGIF). Mr. Park started his legal career as a Korean attorney at the largest law firm in Korea (Kim and Chang) where he gained hands-on experience in capital market transactions, cross border financial transactions and project financing. He has served as General Counsels of Korean subsidiaries of global institutions of Lehman Brothers Securities/Bank and Citibank. He held the position of General Counsel & Board Secretary for Citibank Korea and Citigroup Korea.

Mr. Park attended the Law School of Seoul National University (for his Bachelor, Master and PhD in banking & securities regulation), and Law School of Stanford University (Master degree of SPILS (Stanford Program for International Legal Studies).


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ContactsJay LeePartner, Hong Kong

T +852 2583 8282E [email protected]

Jay has about 20 years of experience in advising global banks, corporations and asset management companies on debt capital markets transactions (RMB bonds, G-3 bonds, equity-linked products, high yield bonds, among others). Jay also advises on structured debt products and derivatives transactions as well as other general corporate and finance matters.


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Simmons & Simmons is registered in China as a foreign law firm. We are permitted by Chinese regulations to provide information on the impact of the Chinese legal environment and also to provide a range of other services. We are not admitted to practice inChina and cannot, and do not purport to, provide Chinese legal services.

The information provided in this presentation is prepared as a general guide. It should not be considered as a substitute for any professional advice which should take account of your specific circumstances. The subjects covered herein always change and develop. No responsibility can be accepted by the firm or the author for any loss incurred by any person acting or refraining from acting on the basis of this presentation.

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Green bonds update and CGIF guaranteed green bonds