Hong Kong conglomerate New World Development on Thursday sold Asia's first public offering of US dollar sustainability-linked bonds, a signal of the company's commitment to cut its carbon footprint.
The issue was also the first US dollar SLB by a property developer and the first unrated issue in the format globally.
NWD priced the 3.75% 10-year bond at 99.53 to yield 3.807%, or Treasuries plus 275bp, inside initial guidance of 300bp area, through joint global coordinators and structuring agents JP Morgan and UBS.
Final orders for the capped US$200m senior unsecured offering were over US$940m from 63 accounts, with Asia-Pacific taking 82% of the Reg S notes and EMEA 18%.
Around 79% of the bonds were allocated to ESG-focused investors, including some quasi-sovereign institutions. Asset managers and fund managers booked 76%, private banks 9%, insurers 13%, and banks and others 2%.
NWD (MTN) is the issuer of the senior unsecured bonds and New World Development is the guarantor. The lack of a credit rating for the issuer and the bonds would ordinarily limit some investors' participation, but the ESG features of the bond encouraged them to place orders.
Pricing was around 5bp inside fair value, based on a May 2030 bond that was seen at Treasuries plus 280bp, and marked the lowest yield on record for NWD.
NWD has set a sustainability performance target of using 100% renewable energy in its properties in the Greater Bay area, covering Guangdong, Hong Kong and Macau, by the 2025–26 financial year. If it misses that target, a penalty mechanism will require it to purchase carbon offsets equivalent to 0.25% of the outstanding principal amount of the bonds annually until maturity.
“Investors like the structure because it creates an incentive for the issuer to meet the target, and even if they don’t the environment benefits, not just investors.” said Alvin Yeo, head of green and sustainable finance for Asia debt capital markets at UBS.
Innovative incentives
NWD's new trade marks the latest step in the development of Asia's ESG bond market.
In December, Singapore-headquartered agribusiness company Olam International sold ¥7bn (US$67m) five-year sustainability-linked notes through ANZ, in the first such transaction in Asia ex-Japan. The bonds, which pay 2.05% and have a tiered one-time step-down adjustment to the coupon if Olam meets agreed targets, were sold in a private placement to Development Bank of Japan.
“The lack of precedents in this region creates room for issuers to create more innovative ideas for their SLB features," said Yeo. "It shouldn’t be limited to coupon step-ups.”
Whereas multiple green or social bonds can be issued off the same programme, each new sustainability-linked bond issue requires its own framework with specific KPIs, although the same SLB could be tapped to increase the size of the line.
The developer has set itself several sustainability targets, including the goal to cut energy and carbon intensity by 50% between 2015 and 2030. As of financial year 2020 it had reduced these by 17% and 22%, respectively, from 2015.
In November, NWD and DBS Hong Kong completed Hong Kong's first interest rate swap linked to the United Nations' Sustainable Development Goals, in order to hedge the interest-rate risk on a HK$1bn five-year sustainability-linked loan. Under the terms of the swap, NWD is entitled to receive sponsorship from DBS to support social innovation projects if the property company generates at least eight business-to-business integration opportunities that contribute to the UN SDGs.