International Financing Review March 21 2020 11For daily news stories
@ visit http://www.ifre.comCarney praises green,
warns on transition
People & Markets Green bonds are “a great innovation”BY TESSA WALSHMark Carney celebrated the
success of the green bond
market last week, but warned of
the building up of risks in banks
and asset managers as the UK
and global economies transition
to net zero carbon emissions.
The former Bank of England
governor said that although
longer-term investors were
among the most sophisticated
managers of climate risk, risks
are rising in other institutions
that take a short or medium-
term view.
“The uncomfortable middle is
in the banks and the asset
managers; their time horizons
are shorter, their assets turn
over, but transition risks are
building up,” he said.
Carney was outlining his
work for the COP26 summit,
due to be hosted in Glasgow in
November, to the UK’s House of
Lords EU Financial Affairs Sub-
Committee.
#ARNEY ûAûlNANCEûADVISERûTOû
the British prime minister for
COP26 and UN special envoy for
CLIMATEûACTIONûANDûlNANCE û
acknowledged the problems
that the coronavirus pandemic
is causing, as fears have grown
that the crucial meeting could
be postponed or delayed.
“It doesn’t make it any easier
... there is international and
lNANCIALûDIPLOMACYûTHATûWILLû
have to be conducted by other
means, but we will do our
utmost in order to accomplish
that,” Carney said.
Carney said that his work for
COP would focus on reporting,
disclosure and forward-looking
climate scenario testing to
ensure that transition becomes a
mainstream consideration for
lNANCE
The green bond market is
developing well and as a
US$500bn market that accounts
for 5% of the global bond market
is now “a clear asset class”,
Carney said.He described green bonds as
“a great innovation” and “one of
the success stories in green
lNANCEvûANDûASûSUCHûSAIDûTHATûHEû
would not be spending time on
it as part of the COP26 work.
Carney said that green bond
standards were now regularised
and investors buying green
bonds listed on the London
Stock Exchange could be assured
of quality and the consistency of
the underlying green attributes.He also outlined the merits of
sovereign green bond issuance
to signal the scale of climate
ambition and to develop deeper
%3'ûlNANCINGûMARKETS
Pressure is growing on the
DMO of the UK to issue green
Gilts in the run-up to the COP
meeting.
He pointed out the lack of
green bond issuance by UK
entities or in sterling, compared
to outstanding French or US
green bond issuance.
“There are a lot of green
bonds that are underwritten in
London that are listed on the
London Stock Exchange, but
there are not many by UK
entities or issued in sterling,”
Carney said.
He noted that about a third of
higher-rated sovereigns were
now able to issue green bonds at
a better price and a lower yield
relative to conventional deals,
showing the so-called
“greenium” although he noted
the cost to ensuring appropriate
use of proceeds.
h#ERTAINLYûTHEûlRSTûTIMEûYOUû
issue, there’s an element of [it
being a] bespoke security
relative to just tapping another
Gilt issuance,” he said. when companies come
calling, but the terms will need
to give underwriters some
headroom and may come at a
cost.
After shares in both Austrian
sensor maker AMS and luxury
carmaker Aston Martin
Lagonda fell through respective
discounts to TERP and
pricing for their respective
rights issues underwriting,
banks need to know there is
enough headroom before they
end up owning the stock
themselves.
In 2011, Banca Popolare di
Milano raised €800m at a just
over 40% discount to TERP
despite some banks declining to
underwrite and those that did
only narrowly avoided
becoming shareholders. At the
time, ECM bankers were saying
discounts to TERP needed to be
REmECTIVEûOFûMARKETûCONDITIONSû
and be in the 30%–40% range,
with fees on average in the
2%–3% range.
“Last time around, for
distressed issues, about 45% was
the typical discount to TERP,”
said the ECM head.
And while Sasol’s deal was
put together quickly, suchcompressed timelines are likely
to be the exception rather than
the rule.
“Companies need
authorisation, including from
shareholders, then to hire banks
and advisers and then put
together a prospectus, these
things can take months,
especially if they have not been
thinking about raising cash
before now,” said the syndicate
head.Right now, he said, state
advice and bailouts are
more likely. “Would investors
be putting money in and
banks underwriting an airline
right now? Probably not, the
best source of immediate
capital is probablygovernments.” (^)
The company has not decided
as yet how big a stake it will sell.
The size of the deal could be
around US$5.5bn if a 10% stake
is being sold, based on its
market capitalisation of
US$55bn last Wednesday.
A spokesperson from JD.com
declined to comment.
LONG QUEUE
JD.com follows in the footsteps
of bigger rival Alibaba Group.
Last November, the US-listed
e-commerce giant raised
HK$101bn (US$13bn) from a
Hong Kong listing in the city’s
largest equity offering since
insurer AIA’s US$20.5bn IPO in
2010.
Many US-listed Chinese
companies are also considering
a Hong Kong listing. NYSE-listed
YUM CHINA, which operates the
KFC, Pizza Hut and Taco Bell
brands in China, is working
with CICC and Goldman Sachs for
a potential deal. Technology
companies such as Trip.com,
Netease and Baidu are also
considering share sales in the
city.
This could be just the
beginning. A research report
from CICC estimates that 19 US-
listed Chinese companies could
list in Hong Kong to raise a
combined US$34bn. They are
JD.com, Baidu, Netease, TAL
Education, New Oriental, Ctrip,
ZTO Express, Yum China,
Weibo, Huazhu Hotels Group,
Autohome, Vipshop, GDS, 58.
com, Momo, 51job, YY, China
Biologic Products and Sina.
“With this extreme
market volatility, the
first half is basically
gone now. We are
hoping to win mandates
for some sizeable deals
that could come in the
second half”
“Would investors be
putting money in and
banks underwriting
an airline right now?
Probably not, the best
source of immediate
capital is probably
governments”
“The uncomfortable
middle is in the banks
and the asset managers;
their time horizons are
shorter, their assets turn
over, but transition risks
are building up”
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