Hungary on Tuesday issued the first green sovereign Panda bond in China's interbank bond market with a Rmb1bn (US$157m) deal via bookrunner and lead underwriter Bank of China.
The three-year bonds were priced at par to yield 3.28%, around the middle of an indicative range of 2.9%–3.5%. The transaction was 1.78 times covered.
The green angle contributed to lower the funding cost by around 30bp compared to Hungary's last Panda issue in 2018, according to a person familiar with the deal. The spread over China Development Bank's bonds – the accepted benchmark for the Panda market – was 59bp this time against around 90bp in 2018.
"The green format has helped to attract investors as we have seen with other green transactions in the onshore market," said the person. "Corporate issuers have been able to achieve a 5bp–10bp cost saving compared with their non-green issues in some recent deals. Financial institutions sometimes save even more than 10bp, depending on the issuer's credit quality and investor demand."
Against the backdrop of China's strong policy support for green finance, some investors are also chasing green bonds before year-end as their portfolios have not yet reached their targets, she said.
The central European country, rated AAA by China Lianhe and Baa2/BBB/BBB by global rating agencies, issued the senior unsecured bonds under its 2021 RMB green bond issuance programme and its green bond framework (May 2020), which is aligned with the ICMA Green Bond Principles and was reviewed by Cicero Shades of Green as the second-party opinion provider.
Proceeds will be remitted offshore, converted into euros and used for eligible green expenditures in line with Hungary's planned transition to a low carbon, climate-resilient and environmentally sustainable economy.
Lianhe Equator has certified that the new bonds comply with the requirements of the Green Bond Endorsed Projects Catalogue (2021 Edition), the ICMA Green Bond Principles (June 2021) and the Sustainable Development Goals and self-regulatory rules of the National Association of Financial Market Institutional Investors.
About 60% of the bonds went to onshore investors and the rest to offshore investors. Buyers were mainly financial institutions, according to the person familiar with the deal.
"Green bond issuance in the onshore market has been growing at a compound annual growth rate of around 30% since 2016. It is a global trend and there'll be more green issuance in China, including Panda bonds," the person said.
Hungary achieved a cost saving of about 10bp–20bp after currency swap compared with its recent euro deals, said the person. She expects the sovereign will revisit the Panda market given that it still has Rmb2bn of available quota.
Hungary made its debut in the Panda bond market in 2017 with an offering of Rmb1bn three-year notes at 4.85%. In 2018, it issued Rmb2bn three-year notes at 4.3%.
In October, the Republic of Poland, rated A2/A–/A–, priced a Rmb3bn three-year Panda bond offering in China's interbank market at par to yield 3.2%.
The transaction was the first sovereign Panda issue since Portugal's Rmb2bn three-year bond in May 2019.
Updated story: adds spread over CDB