The Kingdom of Thailand sold its inaugural sustainability bond in August, in a rare syndicated deal that showed its commitment to environmental and social initiatives and was warmly received by global investors.
The Bt30bn (US$997.6m) bond was initially envisaged as a green bond to raise funds for a Bt113.3bn electric mass rapid transit project, before it was expanded to include social bonds to support a Bt1.9trn Covid-19 stimulus package targeting public health and small businesses and people affected by the outbreak.
Those two elements were combined in an all-encompassing sustainable financing framework that is aligned with global green and social bond principles, as well as the ASEAN sustainability bond standards.
The sovereign, acting through Thailand’s Ministry of Finance, had a number of goals – to achieve a minimum issue size of Bt20bn, to set a pricing reference for green and social bonds from the corporate sector, and to create a new government benchmark beyond its existing June 2035.
Investor confidence was boosted by a clear message that the sovereign intended to keep the benchmark liquid, with plans to issue up to Bt100bn of sustainability bonds over two years.
One of the challenges was that regulatory limitations required the green and social bonds, which would have the same terms and pricing, to have different settlement dates, but investors were happy with the solution of having built-in accrued interest as compensation.
Joint sustainability structuring advisers and joint lead managers Bangkok Bank, Bank of Ayudhya and Standard Chartered Bank Thai worked together to obtain a second-party opinion from Sustainalytics.
Bookbuilding on the December 2035 sustainability bond was launched on August 13 at an initial price guidance of 1.585%. With orders peaking at over Bt60bn, the sovereign decided to keep final pricing unchanged but increased the issue size to Bt30bn, split between Bt20bn of Covid-19 rehabilitation bonds and Bt10bn of green MRT bonds.
The bonds went to a diverse group of investors, from asset managers to banks to insurance companies. Notably, foreign investors came in for a healthy 24% of the deal – higher than the typical 15%–18% allocation on regular Thai government bonds.
Despite a six-month longer maturity, the new bond also priced inside the existing 15-year TGB benchmark, which was quoted at 1.588% at that time.
This transaction paved the way for debut green bond offerings from state-owned issuers Bank for Agriculture and Agricultural Cooperatives (BAAC) and National Housing Authority in August and September for a combined Bt12.8bn. The sovereign returned in November for a Bt20bn tap of the sustainability bond to raise more funds for the MRT project, and added another Bt15bn in January 2021 to lift the total outstanding to Bt65bn.
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