The largest US banks reveled in a record year for investment banking as M&A and equity underwriting activity surged in 2021, but now comes the bill to keep star performers in a hot jobs market. Bankers are expecting record pay and bonuses for a grueling year and banks have socked away billions more than in previous years to meet those expectations. The big five US banks put away 15% more last year for compensation costs than in 2020 – a rise of US$18.1bn to US$142bn. JP Morgan, Citigroup, Bank of America and Morgan Stanley all lifted pay by at least 10%, but Goldman Sachs led the way, with the amount it will pay its employees jumping 33%, or US$4.4bn, to US$17.7bn, exceeding its reputation for paying for performance. “JP Morgan and Goldman have sent a message that they intend to win the war for talent in banking,” said Wells Fargo bank analyst Mike Mayo. “I haven’t seen a battle this intense in the three decades I’ve been covering banking.” Goldman's shares fell 7% on the day of its results due to concern about rising costs, in particular the wage bill. "On compensation, our philosophy remains to pay for performance, and we are committed to rewarding top talent in a competitive labour environment," Goldman CEO David Solomon told analysts on a conference call. He said he had a personal priority to invest in the bank's people. “In 2021, we demonstrated this commitment not only through our pay-for-performance approach, but also by supporting our people in a variety of other ways, including new benefits and investments in health and safety.” Goldman also added a net 3,400 staff last year, an 8% increase. Its compensation bill equated to average annual pay of US$404,000 for each of its 43,900 employees, up 23% from the average in 2020. While compensation at JP Morgan rose more modestly, it was still up 10% to US$38bn last year, and pay expense inside its corporate and investment bank rose 13% from 2020 to US$13.1bn, including a 20% jump in the fourth quarter. In Morgan Stanley’s securities group compensation rose 10% to US$9.1bn. Compensation across the bank rose 18% to US$24.6bn. Pay at Goldman and in JP Morgan and Morgan Stanley's investment banks last year was up 20% from the year before on average. Citigroup and BofA do not break out pay by division. Margin squeeze The results confirmed the war for talent that has been raging on Wall Street, and the big banks have been using considerable resources to win and retain bankers. JP Morgan was among the first to boost starting salaries for junior bankers above US$100,000, which was quickly matched and exceeded by rivals. Last week JP Morgan lifted that salary to US$110,000, with pay rising by US$15,000 in the second year and another US$10,000 – to US$135,000 – in the third year. The increase brings JP Morgan in line with other banks that reached those levels last year and could kick off another round of bidding. “As we've always said, we're going to be very, very competitive on pay,” JP Morgan CEO Jamie Dimon told analysts on the fourth-quarter earnings call. Dimon said the bank had set aside US$1bn in merit increases for top bankers, traders and managers who did an extraordinary job in the last couple of years. “We will be competitive on pay. And if that squeezes margin a little bit for shareholders, so be it,” Dimon said. Mayo cut his estimates for bank earnings in December, expecting expenses to continue to rise this year. Across the five banks, revenue from investment banking rose 40% last year to US$54bn. Revenue from trading dipped from the record levels of 2020, but was still nearly US$102bn and one of the best years ever. Bankers across the spectrum are expecting a spectacular pay day when bonuses are handed out, and none more so than M&A bankers, said one recruiter. “It’s not exactly ‘eat what you kill’, but it's close,” he said. And banks lik
Signs that investors' desperate search for yield, so prominent in recent years, could be coming to an end began to emerge last week when a sharp rise in government debt yields claimed 2022's first deal casualty. And with the market going through the resulting readjustment, the going may be far from easy for some asset classes. Austrian lender Raiffeisen Bank International was forced to pull the 15-year part of a dual-tranche covered bond exercise after lead managers (Barclays, BNP Paribas, Commerzbank, ING, Mediobanca and RBI itself) failed to muster enough demand for a €250m trade. And while the State of Berlin managed to get a €500m 30-year over the line, the issuer had to lean on lead managers who put in €125m of orders in the €500m book. It is very unusual for a covered bond to be pulled. Especially in January and especially in recent years when central banks have unleashed vast amounts of liquidity into financial markets, leading to a compression in valuations across asset classes and leaving investors with little choice but to either go down the credit curve or move along the duration curve in order to make returns. However, that tide is turning as central banks begin to withdraw cheap liquidity and raise rates. “The Fed has accounted for the vast majority of global QE, so once they start to tighten, everyone has to follow," said a head of syndicate. While the European Central Bank is not in lockstep with the US Federal Reserve, the pull higher in yields is still hard to resist. The 10-year Bund hit 0% for the first time since 2019 last week while two-year US treasury yields hit 1% for the first time since February 2020. "In euros particularly, the big issue is the fact that we’re transitioning to a positive state," the head of syndicate said. "All our rates have been negative, so for a lot of people, going into a positive rate environment, that changes how you think about the opportunity cost. Where rates are negative, your opportunity cost is zero, that’s good enough. Now, there’s a good chance that the risk-free rate will have better value at some point and you have to look at things differently.” Already, the universe of negative yielding debt has shrunk. Just over 52% of euro government bonds were negative yielding on January 18, well below the over 72% figure of December 2020. And recent issuance patterns suggest that borrowers are focusing more on the shorter part of the curve. Ten-year SSA issuance, for example, has already reached €44.5bn this month, the highest volume of the last five years by the same point, according to IFR data. "Duration is going to be a challenge," a head of DCM said. "EU sovereigns have flocked to duration in recent years. They've had it pretty good as investors moved along the yield curve but if we see the yield curve invert, who is going to want to lock in these rates at the long end?" It is not just SSA borrowers that are going shorter. For covered bond issuers, the greatest depth of demand is below the 10-year point as shown by Bank of Montreal which priced a post-global financial crisis record-breaking €2.75bn five-year trade last week. Meanwhile, Banco Santander's €1.5bn three-year non-call two senior preferred was the first time the Spanish bank had raised such short-dated debt in a decade. "If you come to market now with the high beta credit at the front end of the curve, it flies," said the head of syndicate. "It’s basically perfection. If you say buy 'high beta longer', I’m not even sure it’s a price discussion. I think people would say: 'I don’t need to take that level of risk to capture what I deem to be a sensible coupon or yield'. It’s a mentality change." Not everyone is as gloomy about access to the long end, however. "I think it's a nuanced story," another head of DCM said, adding that once the market stabilised, investors would return to the long end to pick-up levels the
The ESG market places “too much reliance on ratings”, although this problem will potentially work itself out as the industry matures and regulators and professionals find the right balance between supervision and autonomy, according to Martin Maloney, secretary general of Madrid-based IOSCO. Government regulators and multinational groups, including the International Organization of Securities Commissions, have been closely vetting the market for ESG finance amid a surge of interest and deal volume. Among the challenges in this nascent industry has been the confusing sets of standards and methodologies that go into evaluating an issuer’s environmental credentials and earn them green labels, second-party opinions and ESG ratings – as well as investor confidence. Absent more substantive, dependable data on vital things like carbon and methane emissions, money managers often rely too heavily on these evaluations, Maloney argues. “In a mature, well-serviced market, ratings are part of a broader market analysis and assessment process where information is combined and digested according to the investment appetites of customers,” Maloney said in a written response to IFR questions. “We have too much reliance on ratings when it comes to ESG matters at the moment because that ecosystem of information, market analysts and ESG investment managers is only in its infancy.” At present, ratings providers bear a “huge burden of responsibility”, he said. At the end of last year IOSCO, whose members include the US Securities and Exchange Commission, called for greater oversight of ESG ratings and data providers in a 53-page report detailing its concerns. The report found, among other things, that there was a lack of clarity about what ratings or data products intend to measure and a lack of transparency about the methods used to produce the ratings. Trickle-down effect “They have to build trust through good management of conflicts of interest, strong transparency about their methodologies and openness about the limitations of their ratings,” said Maloney, who joined IOSCO as secretary general in September. The oversight of ESG financing as a whole has become more important as the amount of money backing these apparently benevolent concepts has grown quickly. The global market for ESG bonds, for example, hit a record US$985.6bn in 2021, with 44% year-on-year growth, according to Refinitiv data. As volumes continue to surge, the SEC and other agencies are expected to provide guidance on crucial practices like corporate disclosures that are intended to improve the quality of data that investors and ESG ratings providers use to gauge assets. “I am very confident that as we improve the quality of issuer information there will be a trickle-down effect into ratings,” Maloney said. The ESG ratings industry has already been affected by the regulatory changes made to the credit ratings industry in the wake of the 2008 credit crisis. Many of the newer rules related to credit spelled out in the 2010 Dodd-Frank Act are being used to at least help guide the ESG industry. Among other things, credit ratings regulations have helped set standards for the “precision of methodology and responsiveness to market developments” and imposition of fines, Maloney said. They have also “encouraged investors not to rely mechanistically on these ratings” and helped establish working relationships between regulators and agencies.Quite hopeful In both industries – as in the financial markets as a whole – it is also possible to manage any inherent conflicts of interest that may arise from practices like an issuer-pays model for ratings. Eliminating the conflicts is not the only way to manage them, he said. “It is quite feasible to manage conflicts of interest,” he said. “Indeed, managing conflicts of interest is essential to developing viable
The ESG market places “too much reliance on ratings”, although this problem will potentially work itself out as the industry matures and regulators and professionals find the right balance between supervision and autonomy, according to Martin Maloney, secretary general of Madrid-based IOSCO. Government regulators and multinational groups, including the International Organization of Securities Commissions, have been closely vetting the market for ESG finance amid a surge of interest and deal volume. Among the challenges in this nascent industry has been the confusing sets of standards and methodologies that go into evaluating an issuer’s environmental credentials and earn them green labels, second-party opinions and ESG ratings – as well as investor confidence. Absent more substantive, dependable data on vital things like carbon and methane emissions, money managers often rely too heavily on these evaluations, Maloney argues. “In a mature, well-serviced market, ratings are part of a broader market analysis and assessment process where information is combined and digested according to the investment appetites of customers,” Maloney said in a written response to IFR questions. “We have too much reliance on ratings when it comes to ESG matters at the moment because that ecosystem of information, market analysts and ESG investment managers is only in its infancy.” At present, ratings providers bear a “huge burden of responsibility”, he said. At the end of last year IOSCO, whose members include the US Securities and Exchange Commission, called for greater oversight of ESG ratings and data providers in a 53-page report detailing its concerns. The report found, among other things, that there was a lack of clarity about what ratings or data products intend to measure and a lack of transparency about the methods used to produce the ratings. Trickle-down effect “They have to build trust through good management of conflicts of interest, strong transparency about their methodologies and openness about the limitations of their ratings,” said Maloney, who joined IOSCO as secretary general in September. The oversight of ESG financing as a whole has become more important as the amount of money backing these apparently benevolent concepts has grown quickly. The global market for ESG bonds, for example, hit a record US$985.6bn in 2021, with 44% year-on-year growth, according to Refinitiv data. As volumes continue to surge, the SEC and other agencies are expected to provide guidance on crucial practices like corporate disclosures that are intended to improve the quality of data that investors and ESG ratings providers use to gauge assets. “I am very confident that as we improve the quality of issuer information there will be a trickle-down effect into ratings,” Maloney said. The ESG ratings industry has already been affected by the regulatory changes made to the credit ratings industry in the wake of the 2008 credit crisis. Many of the newer rules related to credit spelled out in the 2010 Dodd-Frank Act are being used to at least help guide the ESG industry. Among other things, credit ratings regulations have helped set standards for the “precision of methodology and responsiveness to market developments” and imposition of fines, Maloney said. They have also “encouraged investors not to rely mechanistically on these ratings” and helped establish working relationships between regulators and agencies.Quite hopeful In both industries – as in the financial markets as a whole – it is also possible to manage any inherent conflicts of interest that may arise from practices like an issuer-pays model for ratings. Eliminating the conflicts is not the only way to manage them, he said. “It is quite feasible to manage conflicts of interest,” he said. “Indeed, managing conflicts of interest is essential to developing viable
Asia's SPAC market saw the start of real competition last week, as Hong Kong received its first SPAC IPO application while Singapore’s first listed blank-cheque companies started trading. A focus on Chinese acquisitions, which are off-limits for US SPACs, is expected to give Hong Kong SPACs a strong selling point, but a ban on sales to retail investors could hamper IPOs. Aquila Acquisition Corp, a SPAC backed by China Merchants Bank, on Monday filed for a Hong Kong IPO which people familiar with the situation said could raise about US$300m in the first quarter. The SPAC plans to invest in technology companies in new economy sectors, such as green energy, life sciences and advanced technology and manufacturing, in Asia, with a focus on China. Aquila is the first blank-cheque company to file for a Hong Kong IPO after the city’s bourse operator Hong Kong Exchanges and Clearing announced last month that SPACs would be allowed to list from January 1. Hong Kong is catching up with regional rival Singapore to offer investors a new investment tool, even though appetite for SPACs has waned from the frenzy of early last year. Singapore had its first two SPACs listed last week and one more is on track for completion this month. Temasek-owned Vertex Technology Acquisition Corp opened 5% up on Thursday and ended the day at S$5.05, 1% above the issue price after raising S$170m (US$125m) from the float. Tikehau-backed Pegasus Asia debuted 0.2% higher on Friday following a S$150m IPO. Novo Tellus Alpha Acquisition, sponsored by Singapore-based private equity firm Novo Tellus Capital Partners, closed books for a S$150m deal on Thursday. The transaction was multiple times covered with demand from regional long-only investors, ultra-high-net-worth investors and multi-strategy funds. Bankers in Hong Kong, meanwhile, are busy selling the SPAC idea to Chinese state-owned companies, buyout firms and family offices of Hong Kong/China tycoons. “Being one of the first SPACs in the city may enjoy first-mover advantage, but we do believe there is demand for China-focused SPACs given listing in the US is no longer an option,” said a person involved in the Aquila deal. Tightened scrutiny Since the Didi Global fiasco, the US Securities and Exchange Commission has tightened scrutiny over Chinese-related deals. SPACs backed by Chinese sponsors or target acquisitions in China face round after round of enquiries from the regulator. Keyarch Acquisition Corp, backed by Greater China focused asset management company Keywise Capital, was only able to file for a US$100m Nasdaq IPO after it said it would not combine with a target that is based in or has its principal business operations in China (including Hong Kong and Macau). Aquila believes Hong Kong is the right market in which to list. “Benefiting from policy and regulatory support, such as the constantly evolving Hong Kong listing framework, the recently introduced SPAC listing regime and Stock Connect, [the] Hong Kong market is expected to continue to promote more comprehensive funding options, thereby attracting high growth and innovative companies and investors,” it said in a filing. Besides Aquila, a SPAC backed by Primavera Capital and the asset management unit of ABC International is also considering a Hong Kong IPO of around US$200m that may come in the first quarter. Higher bar The more demanding Hong Kong SPAC regulations and fading investor interest in the instrument globally, however, may mean the city will not see a long line of SPAC candidates. “The Hong Kong rules set a minimum fundraising amount and do not allow retail investors to invest in SPACs. There are also some strict requirements on de-SPACs. All these will limit the development of SPACs in the city,” said an ECM banker. Retail investors are barred from investing in SPACs in Hong Kong and the minimum fundraising size is set at HK$1bn (US$128m). While the US and Singapore both allow retai
The imminent launch of Canada’s debut sovereign green bond has highlighted continuing controversy over the product financing nuclear power, as well as the absence of the US and Japan from the green bond market despite their standing as the world’s two largest government bond issuers. Ottawa will launch its first green bond this quarter, fulfilling its earlier undertaking to enter the market “to support the environment and climate change plan” before the end of its 2021–22 financial year on March 31. The deal “will be the first of many issuances”, according to the government's announcement in the 2021 budget. Some market observers had expected Canada to enter the market before the COP26 international climate summit in November, as G7 peers Italy and the UK did. But the sovereign went silent after June when it appointed HSBC and TD Securities as its structuring advisers. Nonetheless, Canada continues to target C$5bn (US$4bn) for the transaction, which it will issue under a green bond framework that it has yet to publish. Although the appointment has not been announced publicly, Toronto-headquartered Sustainalytics is providing a second-party opinion on the framework. Nuclear option One controversy is the potential inclusion of nuclear power in the sovereign’s framework. Until now, even strong supporters of nuclear power, such as France and the UK, have excluded the energy source from their green frameworks. However, Canada’s growing nuclear capacity and the fact that nuclear power may feature in the EU's taxonomy of sustainable activities have led market observers to speculate that Ottawa may break with these precedents – particularly after domestic utility Bruce Power in November issued the first green bond to fund nuclear power. Explicit nuclear use of proceeds appears unlikely. But the sovereign could position itself for eventual inclusion by not excluding nuclear expenditures. “My hope is that there's not an exclusion,” said Jonathan Hackett, head of sustainable finance at BMO Capital Markets. “That will really support an eventual adjustment when the time comes for revision.” Several sovereigns have asked banks about whether they should include nuclear power in their sustainability frameworks since Bruce Power's landmark deal – especially after the deal received a positive second-party opinion from Cicero Shades of Green. That is sensible, Hackett argues. “Especially for sovereigns, you're talking about your strategy for achieving net zero and the tools that you're using to achieve it. It seems to me contrary to that goal to exclude one of the key levers that you have in achieving decarbonisation,” he said. Absent US and Japan At the targeted size, Canada’s inaugural deal will bring total G7 sovereign green bond sales above US$110bn in the five years since France’s groundbreaking “OAT verte”. Yet the world’s two largest government bond issuers remain outside the market. The US’s absence is especially striking as the Biden administration’s first action on taking office was to rejoin the COP21 Paris Agreement on climate change. It has since set a 2030 emissions target and made a raft of commitments at COP26 – including on methane and international climate finance, as well as co-operation with China on climate change. “Green US Treasury bonds would be exceptionally impactful – a reference for the whole world. It’s really a missed opportunity,” said one head of capital markets. Market professionals suggested that the administration’s legislative failures may have impacted the Treasury’s appetite for new initiatives. “We expect US dollar green bond issuances to gain momentum over 2022, which could at some point be followed by a US green Treasury. Yet Biden is still struggling to get the approvals to deliver on his climate pledges. This is li
Asia's SPAC market saw the start of real competition last week, as Hong Kong received its first SPAC IPO application while Singapore’s first listed blank-cheque companies started trading. A focus on Chinese acquisitions, which are off-limits for US SPACs, is expected to give Hong Kong SPACs a strong selling point, but a ban on sales to retail investors could hamper IPOs. Aquila Acquisition Corp, a SPAC backed by China Merchants Bank, on Monday filed for a Hong Kong IPO which people familiar with the situation said could raise about US$300m in the first quarter. The SPAC plans to invest in technology companies in new economy sectors, such as green energy, life sciences and advanced technology and manufacturing, in Asia, with a focus on China. Aquila is the first blank-cheque company to file for a Hong Kong IPO after the city’s bourse operator Hong Kong Exchanges and Clearing announced last month that SPACs would be allowed to list from January 1. Hong Kong is catching up with regional rival Singapore to offer investors a new investment tool, even though appetite for SPACs has waned from the frenzy of early last year. Singapore had its first two SPACs listed last week and one more is on track for completion this month. Temasek-owned Vertex Technology Acquisition Corp opened 5% up on Thursday and ended the day at S$5.05, 1% above the issue price after raising S$170m (US$125m) from the float. Tikehau-backed Pegasus Asia debuted 0.2% higher on Friday following a S$150m IPO. Novo Tellus Alpha Acquisition, sponsored by Singapore-based private equity firm Novo Tellus Capital Partners, closed books for a S$150m deal on Thursday. The transaction was multiple times covered with demand from regional long-only investors, ultra-high-net-worth investors and multi-strategy funds. Bankers in Hong Kong, meanwhile, are busy selling the SPAC idea to Chinese state-owned companies, buyout firms and family offices of Hong Kong/China tycoons. “Being one of the first SPACs in the city may enjoy first-mover advantage, but we do believe there is demand for China-focused SPACs given listing in the US is no longer an option,” said a person involved in the Aquila deal. Tightened scrutiny Since the Didi Global fiasco, the US Securities and Exchange Commission has tightened scrutiny over Chinese-related deals. SPACs backed by Chinese sponsors or target acquisitions in China face round after round of enquiries from the regulator. Keyarch Acquisition Corp, backed by Greater China focused asset management company Keywise Capital, was only able to file for a US$100m Nasdaq IPO after it said it would not combine with a target that is based in or has its principal business operations in China (including Hong Kong and Macau). Aquila believes Hong Kong is the right market in which to list. “Benefiting from policy and regulatory support, such as the constantly evolving Hong Kong listing framework, the recently introduced SPAC listing regime and Stock Connect, [the] Hong Kong market is expected to continue to promote more comprehensive funding options, thereby attracting high growth and innovative companies and investors,” it said in a filing. Besides Aquila, a SPAC backed by Primavera Capital and the asset management unit of ABC International is also considering a Hong Kong IPO of around US$200m that may come in the first quarter. Higher bar The more demanding Hong Kong SPAC regulations and fading investor interest in the instrument globally, however, may mean the city will not see a long line of SPAC candidates. “The Hong Kong rules set a minimum fundraising amount and do not allow retail investors to invest in SPACs. There are also some strict requirements on de-SPACs. All these will limit the development of SPACs in the city,” said an ECM banker. Retail investors are barred from investing in SPACs in Hong Kong and the minimum fundraising size is set at HK$1bn (US$128m). While the US and Singapore both allow retai
Blank-cheque companies under pressure to find acquisition targets after raising mammoth amounts of capital during the recent SPAC boom are making little progress in Asia, despite earlier hopes that the region would provide a fertile hunting ground. A number of US-listed SPACs backed by Asian sponsors or with Asia-focused mandates had been looking to cash in on the region's most promising tech start-ups, drawn by favourable demographic and economic trends in fast-growing markets such as China, India and South-East Asia. However, increasing regulatory uncertainty in China, waning investor interest due to regulatory changes in the US, the underperformance of some Asian companies that have gone public through SPACs (via so-called SPAC combinations or de-SPACs) and the sheer number of blank-cheque companies chasing deals have dimmed these prospects. "In the past, there were a lot of SPACs, including a few from sponsors with no track record in Asia that were nonetheless looking at target companies in this region, but that's no longer the case," said Rohit Chatterji, co-head of M&A for Asia-Pacific at JP Morgan. "Even for the better-quality sponsors, the target companies are asking, can you bring real institutional capital to do a PIPE to back up the redemptions? If you can't, there's no deal to be done. There will still be de-SPAC transactions that get done but the past euphoria is gone."Packing a punch It is difficult to put an exact figure on the number of sponsors looking at Asia and the amount of capital chasing deals in the region, but there is no doubt it is significant. According to Refinitiv data, 674 sponsors raised a total of US$162.6bn from SPAC IPOs last year, more than double the number of deals and total proceeds raised in 2020, the previous record. Law firm White & Case estimates that more than 30% of SPACs launched from January 2020 to July 2021 were focused on targets in Asia-Pacific or had the backing of sponsors from the region. Not all Asian sponsors, though, focus on targets in the region. Citic Capital, for example, the first state-owned company from China to list a SPAC, agreed in June to merge its Citic Capital Acquisition Corp with Quanergy Systems, a US-based supplier of technology for self-driving cars, at an implied value of US$1.4bn, in one of the more high-profile deals. However, the intrinsic focus of SPACs on fast-growing tech companies gives a natural push to Asia, which has an abundance of them. But three factors are making Asia a challenging region to carry out de-SPAC transactions. First, sponsors are increasingly turning their attention towards more established companies due to market volatility and that limits the pool of acquisition candidates because of the preponderance of early-stage firms in Asia. Second is the underperformance of some high-profile SPAC combinations involving Asian companies. Grab Holdings' record US$39.6bn merger with Nasdaq-listed Altimeter Growth is the poster child for this after the company's share price fell by more than half since it went public last month. ReNew Energy Global, which was formed out of the merger between ReNew Power, the Indian renewable energy producer backed by investors including Goldman Sachs, and RMG Acquisition Corp II at an enterprise value of US$7.85bn, has hardly fared much better. Its share price is down 35% since it listed in August. Those declines follow weakness in the broader market, though: the De-SPAC Index, which tracks the 25 largest companies that have completed a de-SPAC within one year, is down 60% in the past 12 months. The third – and most important – factor is the increasing regulatory uncertainty in China and geopolitical tensions with the US, which effectively means Asia's largest market is currently off-limits to US-listed SPACs. "It will undoubtedly take a bit more time before we see deals from China again, at least until we get more clarity around the cybersecurity rules. But the interest in other parts
The imminent launch of Canada’s debut sovereign green bond has highlighted continuing controversy over the product financing nuclear power, as well as the absence of the US and Japan from the green bond market despite their standing as the world’s two largest government bond issuers. Ottawa will launch its first green bond this quarter, fulfilling its earlier undertaking to enter the market “to support the environment and climate change plan” before the end of its 2021–22 financial year on March 31. The deal “will be the first of many issuances”, according to the government's announcement in the 2021 budget. Some market observers had expected Canada to enter the market before the COP26 international climate summit in November, as G7 peers Italy and the UK did. But the sovereign went silent after June when it appointed HSBC and TD Securities as its structuring advisers. Nonetheless, Canada continues to target C$5bn (US$4bn) for the transaction, which it will issue under a green bond framework that it has yet to publish. Although the appointment has not been announced publicly, Toronto-headquartered Sustainalytics is providing a second-party opinion on the framework. Nuclear option One controversy is the potential inclusion of nuclear power in the sovereign’s framework. Until now, even strong supporters of nuclear power, such as France and the UK, have excluded the energy source from their green frameworks. However, Canada’s growing nuclear capacity and the fact that nuclear power may feature in the EU's taxonomy of sustainable activities have led market observers to speculate that Ottawa may break with these precedents – particularly after domestic utility Bruce Power in November issued the first green bond to fund nuclear power. Explicit nuclear use of proceeds appears unlikely. But the sovereign could position itself for eventual inclusion by not excluding nuclear expenditures. “My hope is that there's not an exclusion,” said Jonathan Hackett, head of sustainable finance at BMO Capital Markets. “That will really support an eventual adjustment when the time comes for revision.” Several sovereigns have asked banks about whether they should include nuclear power in their sustainability frameworks since Bruce Power's landmark deal – especially after the deal received a positive second-party opinion from Cicero Shades of Green. That is sensible, Hackett argues. “Especially for sovereigns, you're talking about your strategy for achieving net zero and the tools that you're using to achieve it. It seems to me contrary to that goal to exclude one of the key levers that you have in achieving decarbonisation,” he said. Absent US and Japan At the targeted size, Canada’s inaugural deal will bring total G7 sovereign green bond sales above US$110bn in the five years since France’s groundbreaking “OAT verte”. Yet the world’s two largest government bond issuers remain outside the market. The US’s absence is especially striking as the Biden administration’s first action on taking office was to rejoin the COP21 Paris Agreement on climate change. It has since set a 2030 emissions target and made a raft of commitments at COP26 – including on methane and international climate finance, as well as co-operation with China on climate change. “Green US Treasury bonds would be exceptionally impactful – a reference for the whole world. It’s really a missed opportunity,” said one head of capital markets. Market professionals suggested that the administration’s legislative failures may have impacted the Treasury’s appetite for new initiatives. “We expect US dollar green bond issuances to gain momentum over 2022, which could at some point be followed by a US green Treasury. Yet Biden is still struggling to get the approvals to deliver on his climate pledges. This is li
Chinese property developer Country Garden has raised HK$3.9bn (US$501m) from a convertible bond to refinance offshore debt after failing to attract enough demand for a proposed deal last week. The latest offering took advantage of a strong share price recovery in the past few days, after media reports suggested that China is drafting nationwide rules to make it easier for property developers to access funds from sales still held in escrow accounts. The 4.5-year put two CB carries a yield-to-maturity of 4.95% and a conversion premium of 16.4% above the close of HK$6.96 on Thursday. This compares with the US$300m three-year put-two CB Country Garden tested the water for last week, which carried a yield-to-maturity of 4.75% and a conversion premium of 25%. The Thursday deal was driven by reverse inquiry and sold to a few investors, said people with knowledge of the matter. The company plans to use the proceeds to refinance existing medium to long term offshore debt which will become due within one year. However, it will not be used to repay the January 2022 notes upon maturity. Those notes will be repaid at maturity on January 27 using internal resources. UBS is the sole global coordinator and sole bookrunner. Shares in Country Garden surged a combined 18.6% from Tuesday to Thursday.
Bellwether