Tag: ESG Bonds

ESG, Green bond issues rise sharply in 2021 as Indian firms promote sustainable business

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Dealers said companies get better rates on their ESG instruments rather than the normal fundraising instruments. Bank of America has made a global $1.5 billion sustainable finance commitment by 2030, which will focus on environment transition and development aligned to the United Nations sustainable development goal.

By Manish M Suvarna

Issuances of Green and ESG (Environmental, Social, and Governance) bonds have risen sharply in calendar year 2021 as Indian companies are engaging in more sustainable business practices. Indian companies raised nearly $7 billion through ESG and Green bonds in 2021, compared to $1.4 billion and $4 billion in 2020 and 2019, respectively.

Dealers said companies get better rates on their ESG instruments rather than the normal fundraising instruments. Bank of America has made a global $1.5 billion sustainable finance commitment by 2030, which will focus on environment transition and development aligned to the United Nations sustainable development goal.

In 2021, JSW Hydro, Greenko, ReNew Power, and Adani Green have been large issuers of Green bonds. Similarly, Axis Bank AT1, Shriram Transport Finance, Adani Electricity Mumbai, and Ultratech Cement are among the larger fundraisers through ESG bonds.

“Over the last few years, Indian companies have become increasingly conscious of their carbon footprint and the impact of their businesses on all stakeholders and are keen to explore ESG-linked products as they engage in more sustainable business practices,” said Subhrajit Roy, India head, global capital markets, Bank of America.

Most companies are accessing the route of ESG or Green bonds due to multiple factors as they are becoming more conscious of the environmental impact and social responsibilities. Secondly, the focus of the investors has increased on these instruments that led to stronger bids, larger order books, increased pricing leverage and a higher quality investors base. As per data, $1.3 trillion has been raised through green loans or credit supply since 2006, of which $1 trillion has come since 2016 as companies practice green businesses.

Market participants expect issuances of ESG and Green bonds to increase in the coming years as India has started working towards the five-point vision stated by Prime Minister Narendra Modi at the COP26 summit. Bank of America expects fundraising through these instruments by Indian firms to touch $25 billion between 2022 and 2024.

“Investor thinking has evolved from seeing ESG metrics as a tertiary dataset to considering them as an important part of a company’s business model. So actively managing a portfolio’s footprint may help lenders or investors decrease exposure to companies that may face legal and reputational risks arising from environmental or social or governance concerns,” Roy said.

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Global banks push ESG loans in India as climate change threat worsens, BFSI News, ET BFSI

Banking & Finance

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As the climate change threat worsens, global banks are pushing ESG (environmental, social and governance) compliant loans and bonds in India.

A huge pool of global funds is waiting to invest in these securities, which is a big opportunity for such projects in India.

Bank of America (BofA) is offering a 5-7.5 basis points incentive or levying a penalty based on the success or failure of companies in achieving their green targets as stated in the loan documents.

Earlier this year, BofA helped agri and industrial chemicals maker UPL raise a $750 million sustainability-linked loan. This will be a part of the global $1.5 trillion sustainable finance commitment that the US’ second-largest bank has made to be achieved by 2030, in which India will play an important role.

Huge opportunity

Investor interest in debt originating from India is also due to the country’s self-imposed stringent targets as detailed in the Paris Agreement on climate change in 2015. India has committed to reducing greenhouse gas emissions intensity of its GDP by 33-35% below 2005 levels by 2030 and 40% of power from non-fossil fuel-based sources by 2030.

To meet its commitments made under the Paris Agreement, India will need an estimated $2.5 trillion between 2015-2030.

Spelling the opportunity, for example, renewable sources make up only 7.9% of loans to the power sector.

Global lenders have themselves set ambitious targets to ensure a lower carbon footprint.

For instance, Barclays wants to achieve 100 billion of green financing by 2030, after facilitating 32.4 billion by the end of 2020. It is looking to raise $8-10 billion via sustainability-linked bonds by the end of this year.

HSBC deposits

Last month UK-based Hong Kong and Shanghai Banking Corp (HSBC) has raised $400 million of green deposits in India and identified financing opportunities to use those funds. Under its strategy, the bank first finds avenues to finance before raising the resources. The loans are extended for renewable projects, biodiversity linked initiatives, clean transportation and pollution control. Once the loans are sanctioned they are matched with deposits.

HSBC was the first bank to offer a green loan in India in January 2020, and it is currently in discussions to offer sustainability linked loans to multiple companies which will have incentives like a discount on rates.

ESG bonds

The ESG-focused fund-raising (green bonds) market, which has already scaled an all-time high so far this year, is set to cross the $10-billion-mark by December, according to Wall Street investment banking major JP Morgan, which has advised 12 of the 13 such bond issuances out of the country so far this year totalling $6.24 billion.

According to the bank, the overall bond issuances from the country may touch $25 billion this year, having already raised $17.5 billion so far, of which ESG-compliant bonds constitute USD6.2 billion.

Globally, the ESG has become a key board-room topic since 2013-14 and soon investors have also been asking on the ESG principles of their investee companies.



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Axis Bank joins green finance rush with first ESG bonds in India, BFSI News, ET BFSI

Banking & Finance

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Axis Bank has raised $600 million from offshore investors by selling sustainable additional tier-1 (AT1) bonds at a coupon of 4.1 per cent said.

The bank will be using the proceeds towards eligible green and social project categories, as per the term sheet. The bonds will be listed on bourses, including NSE IFSC and India INX IFSC.

The lender launched the issue of the perpetual bonds earlier in the day with the initial pricing guidance at 4.4 per cent, looking to raise up to USD 1 billion.

Axis Bank raised USD 600 million from its GIFT City branch. The issue saw the order book peaking at USD 2.3 billion, as per the sources.

The major investors in the issue included Bluebay, Blackrock, Fidelity and HSBC Asset Management Company, they said.

This was only the third environment, social and governanc-themed bond issue by any lender globally and the first one in India.

The Axis Bank bonds were rated Baa3 (negative) by Moody’s Investors Service, BB+ (stable) by Standard & Poor’s and BB+ (negative) by Fitch Ratings.

HSBC deposits

Last month UK-based Hong Kong and Shanghai Banking Corp (HSBC) has raised $400 million of green deposits in India and identified financing opportunities to use those funds. Under its strategy, the bank first finds avenues to finance before raising the resources. The loans are extended for renewable projects, biodiversity linked initiatives, clean transportation and pollution control. Once the loans are sanctioned they are matched with deposits.

HDFC issue

HDFC, India’s largest private-sector mortgage financier, too announced last month the launch of a new green deposit plan to attract environmentally conscious depositors.

The company plans to raise these deposits from individuals to lend to projects by retail borrowers.

It plans to use these funds to lend to standalone homes which use environment-friendly practices, like putting up solar panels and water recycling, or even to women borrowers or self-help groups.

AT1 bonds

The bank is the third lender in quick succession to raise money from the AT1 route after HDFC Bank raised USD 1 billion from overseas investors last month, and SBI raised Rs 4,000 crore earlier in the day from domestic investors.
The AT1 capital instrument had received a setback after Yes Bank’s investors lost over Rs 8,400 crore of bets after a write-off in the RBI-led bailout.



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Who wanted to own Adani Green and Axis Bank offshore bonds?, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Global investors including Blackrock, Lombard, Washington State Investment Fund, China Asset Management, Fidelity Investment, Goldman Sachs Private Bank were among others to bid selectively for offshore bonds, launched by Adani Green Energy and Axis Bank Wednesday.

Both the issuances obtained multiple times higher subscriptions with funding costs tightening by 30-33 basis points.

Axis Bank decided to retail about $600 million out of an estimated $2.3 billion subscription bids until publication of this report, sources said. Adani Green raised $750 million out of total bids estimated at $3.5 billion.

While Axis Bank sold Additional Tier 1 papers with ‘sustainable’ or ESG tag, Adani Green mopped up funds for capital investments.

“The issuer shall use the proceeds towards eligible green project categories and eligible social project categories set out in the issuer’s sustainable financing framework,” said the Axis Bank term sheet, seen by ET.

Adani was offering three-year securities with initial price guidance of 4.7 per cent. Axis perpetual papers were initially guided to offer 4.4 per cent, with a five-year call.

Adani Green yielded 4.375 percent finally, and Axis bonds likely settled at 4.10 percent, dealers said.

Oppenheimer, Emirates NBD, HSBC Asset Management L&R Capital, China Everbright Securities bid for Axis Bank papers. Besides, Credit Suisse AG and Hong Kong-based Gaoteng wanted to own Adani papers.

Adani Green will likely use the proceeds for “onward lending to issuer’s subsidiaries for capital expenditure requirements to fund the development of utility green projects”.

Both pricings are likely to be tighter by 20 basis points from initial guidance, executives said.

Last month, ET reported on both issues.

The bank is seeking to raise up to $1 billion, while Adani Green is attempting to garner about $700 million.

Global Rating company Moody’s assigned B1(hyb) or (B+ in simple rating terminology) grade to Axis bonds. The rating rank is three notches lower than the bank’s general creditworthiness.

On August 26, ET wrote that Axis Bank was planning to raise up to $1 billion via offshore AT1 bonds, also known as perpetual papers.

HSBC, Citi, MUFG, JP Morgan, Bank of America, BNP Paribas, Standard Chartered and Societe Generale are among others that are helping the bank sell those bonds to international investors.

This issue is the second after HDFC Bank tapped global investors for the first time raising AT1 securities for $1 billion.

On August 9, ET wrote that Adani Green Energy was set to raise about $600 million through overseas bonds to quicken the execution of renewable projects in the next two years.

Barclays, MUFG, DBS Bank, BNP Paribas, Standard Chartered, and Mizuho are among the investment bankers working on the deal.

Individual investment banks, investors and issuers could not be immediately reached.

Moody’s Investors Service assigned a Ba3 (or BB-) rating to the dollar-denominated debt securities of Adani Green.

While the Adani bonds will be listed on the Singapore Stock Exchange, Gujarat GIFT City is the fund-raising platform for Axis.



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Axis Bank to now raise up to $1 billion via overseas AT1 issue, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Axis Bank joins its bigger peer HDFC Bank in selling Additional Tier 1 (AT1) bonds overseas, seeking to garner up to $1 billion in ESG-compliant instruments that should help the Mumbai-based private sector lender reduce its financing costs.

The ‘ESG’ (Environment Social Green) tag should lower the coupon in this round of offering by about 15 basis points, compared with the usual AT1 sales by similarly rated entities, four people familiar with the matter told ET. ESG funds are deployed in green and sustainable projects.

The bank has appointed about 10 investment bankers, including HSBC, Citi, MUFG, JP Morgan, Bank of America, Standard Chartered and Societe Generale.

Axis Bank did not reply to ET’s query. Investment banks couldn’t immediately be reached for comments.

Axis Bank is seeking to raise between $600 million and $1 billion depending on investor demand and pricing.

The initial price guidance could be in the range of 4-4.20 per cent, which would have been higher without the ESG tag, sources said. The ultimate pricing could be lower than the broad initial guidance.

The issue is expected to be launched in a week or two from Gujarat GIFT City depending on the outcome of the Jackson Hole policy meeting in the US, sources said.

“If Jackson Hole does not spring any negative surprise, roadshows are expected to begin from next week,” one of the persons cited above told ET.

The US Federal Reserve will hold its annual economic symposium in Jackson Hole, Wyoming, this Friday on August 27.

Earlier this month, HDFC Bank raised $1 billion amid overwhelming investor response.

Due to high demand, the pricing of those bonds was tightened by 43 basis points from the initial guidance to 3.70 per cent.

Axis Bank will have to offer more than this as the lender may be rated at least one notch lower than the HDFC Bank’s grade. Axis AT1 is expected to be graded as B+ or B, dealers said. The rating isn’t finalized yet.

Global rating company Moody’s rated them as Ba3 (or BB- in simple rating terminology), three notches below the deposit ratings.

A single notch by way of a lower rating can trigger a price differential of 50 basis points for a similar instrument, dealers said.

“The proposed ESG compliant papers will help cut the additional funding cost while creating space for expanding loans for sustainable projects,” said a senior executive involved in the deal.

AT-1 bonds are billed as quasi-equity securities that bear a higher risk of capital losses. Those are generally rated three-to-four notches lower than an issuer’s corporate credit rating.

Axis Bank’s overall capital adequacy ratio (CAR) was at 19.01 per cent in the June quarter with the CET1 (Common Equity) ratio at 15.2 per cent, much above the threshold limit.

Those gauges were at 17.47 per cent and 13.50 per cent, respectively, in the corresponding period a year ago.

The principal and any accrued interest would be written down, partially or in full, if Axis Bank’s CET1 ratio slips to 6.125 per cent later this year.



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