CCB Macau prices SOFR green bond

IFR 2414 - 18 Dec 2021 - 7 Jan 2022
5 min read
Emerging Markets, Asia
Carol Chan, Kit Yin Boey

China Construction Bank Macau branch has raised US$500m from the first green bond out of Greater China to use the "common ground" taxonomy for sustainable finance the EU and China unveiled last month as part of efforts to mitigate the effects of climate change.

The three-year Reg S trade was priced at SOFR plus 50bp, after tightening from initial guidance of the 80bp area.

The CGT, which is still open for feedback until January 4, will set the criteria for investment activities that can be defined as environmentally friendly. The taxonomy will reference the EU and Chinese taxonomies to show commonalities and differences, but it is not an exclusive or single taxonomy for international standards.

International investors have been sensitive to differences in standards and approaches to green financing in the global market, and have sought more clarity and a unified approach. China, for instance, included "clean coal" in its eligible green bond projects under its 2015 guidelines. It removed fossil fuel projects in 2020.

While SOFR-linked dollar bonds and green issues from China are not new to the market, the use of the CGT, which was announced at the UN’s COP26 climate meeting in Glasgow, attracted attention.

According to a lead on the deal, if there are differences in EU and Chinese standards when looking at eligible projects, CCB will adopt the more stringent and/or detailed criteria. The lead expects more Chinese issuers to comply with the CGT in the future when issuing green bonds offshore.

Proceeds from Monday's sale will be used to fund and refinance loans to customers as well as activities that fall under the eligible projects in the bank's green bond framework.

CECEP (China Energy Conservation and Environmental Protection Group) Hundred Technical Service Beijing provided a reasonable assurance attestation report that the framework is aligned with the green bond principles set by ICMA, the International Platform on Sustainable Finance, and the Chinese Society of Technology Economics.

Third Chinese SOFR issuer

CCB, which is rated A1/A/A, is the third Chinese lender to gain exposure to SOFR via a bond issue.

Bank of China printed China's first SOFR bond in October 2019 with a US$350m three-year green offering through its Macau branch. It issued its second SOFR bond in August this year, when it priced a US$500m three-year deal via its Hong Kong branch at SOFR plus 48bp.

Later the same month, China Merchants Bank issued a US$300m two-year SOFR sustainability bond at SOFR plus 50bp through its Luxembourg branch.

The pricing of CCB's new issue is in line with the fair value estimate of research firm CreditSights, which mainly referenced the secondary trading of the SOFR bonds of Bank of China and China Merchants Bank, as well as the equivalent levels of fixed rate notes from other Chinese banks.

BOC's 2024 SOFR bond was quoted at a spread of 52bp and CMB's 2023 SOFR bond at 55bp on the day CCB marketed its SOFR deal, according to CreditSights.

Another lead on the transaction said the final pricing was inside existing Chinese banks' SOFR secondary, but added that the new issue offered a 5bp–7bp new issue premium compared with the fixed-rate notes of China's big four banks.

The premium was offered because the SOFR structure has a much smaller investor base in Asia and secondary trading is illiquid, he said.

"The transaction was quite challenging given the SOFR nature as well as the timing. Some investors have started their holidays or closed their books as it is close to the year-end, which limited the book size," he said. "But we were still able to achieve a benchmark size and bring in some quality international investors, including big funds and central banks."

Orders for the deal peaked at US$800m, including US$575m from the leads, when final guidance at SOFR plus 50bp was announced.

Investors included the Monetary Authority of Macao, Korea Investment Corp, Taishin International Bank and Allianz Global, said CCB.

CCB's senior unsecured bond, with an expected A1 rating from Moody’s, will be sold under its green bond framework and drawn from a US$15bn MTN programme for CCB and CCB Hong Kong branch.

China Construction Bank Asia was sole green structuring adviser.

China Construction Bank, Agricultural Bank of China Hong Kong, Bank of China, China Citic Bank International, China Everbright Bank Hong Kong, China International Capital Corporation, China Securities International, CLSA, CMB Wing Lung Bank, Credit Agricole CIB, HSBC, ICBC, Industrial Bank Hong Kong, KGI Asia, Mizuho Securities, Nanyang Commercial Bank, Natixis, Shanghai Pudong Development Bank Hong Kong and Standard Chartered were joint lead managers and bookrunners.