Green bond rise seen as smog thickens

A pedestrian walks past a HSBC sign in Hong Kong. [Photo provided to China Daily]

China may accelerate approvals of green bonds this year as the nation battles a toxic wave of smog, according to Guotai Junan Securities, the nation's top underwriter of the notes.

Dirty air has led to more than 60 Chinese cities issuing health alerts in recent months, leading to delays to hundreds of flights and encouraging consumers to stay at home.

Guotai Junan, which managed 11 percent of 2016 issuance, said the government should boost incentives for bonds with proceeds earmarked for environmental projects.

"This affects the air we breathe, it affects everyone," said Huang Baoyi, general manager in the debt financing department of Shanghai-based Guotai Junan. "The government should support and encourage green bond investors."

Last March, Ma Jun, chief economist at the People Bank of China's research bureau, said the monetary authority will recommend steps such as waiving tax for holders of green bonds, though no policy has been introduced so far. The central bank hasn't responded to faxed questions.

"I think it is likely and would be a natural first step by the government," said Magdalene Teo, head of fixed income research in Singapore at Bank Julius Baer & Co, a Swiss private bank that includes responsible investing principles in its analysis. "Offering tax breaks to bond investors will incentivize issuers such that they will pay a lower coupon and at the same time help change the mindset of enterprises towards sustainable investments."

Chinese firms including banks, automakers, developers and power producers sold 186 billion yuan ($27 billion) of the debt in the domestic market in 2016, including the nation's debut offering onshore.

China plans to invest 2.5 trillion yuan in renewable energy through 2020 and outlined measures to channel funds toward reducing pollution at the G20 meeting in Hangzhou last September.

China accounted for $31.3 billion of the $78.1 billion in total global green bond sales in all currencies last year, data compiled by Bloomberg show.

HSBC Holdings Plc, which ranked 5th in managing those deals, sees issuance around the world reaching between $90 billion and $120 billion this year. It's starting a new unit to help mobilize sources of sustainable finance.

"China is central to our focus on sustainable financing, having set out a clear path to a lower carbon economy," said Alexi Chan, HSBC's global co-head of debt capital markets. "Market-based reforms are aligning the financial system with China's green objectives and stricter environmental standards are being enforced."

An HSBC survey published last month showed three-quarters of 300 investors planning green investments globally said they lack credible opportunities and quality research.

The PBOC's Green Bond Guidelines, which insist funds get independent assurances and regularly audited disclosure from issuers, are a "very good step forward," Chan said.

Bloomberg