Green bond issuances seen to double to $2 billion

MANILA,Philippines — The green, social and sustainability bond market in the Philippines is expected to almost double to $2 billion next year amid the country’s strong macroeconomic fundamentals, according to American banking giant Citi.

Celine Pastor, director at Citigroup Global Markets Asia Ltd., said in an interview with The STAR that companies and banks are expected to come into the market in the early part of 2020.

“We forecast international green and sustainability bond issuance to eclipse $2 billion in 2020 with domestic markets keeping pace. We acknowledge that this is a large growth as it is effectively a doubling of the market. We see this growth as driven by two factors,” Pastor said.

Many of the companies in the Philippines are committed to sustainable practices and the country has an investor base for green and sustainable bonds, she said.

“We have observed such demand to be more sticky and consistent, so it may be viewed as potentially being less price sensitive,” she said.

According to Pastor, the supply demand dynamics in sustainable financing still continue to be very much in favor of the issuer.

Latest data showed five companies in the Philippines have issued $1.2 billion worth of green, social and sustainability bonds this year. The domestic market has also been liquid for such transactions, bringing the total to over $2 billion year-to-date.

These include the $300 million raised by Yuchengco-led Rizal Commercial Banking Corp. (RCBC) to finance or refinance projects under environmental and social categories, as well as Ayala-led Bank of the Philippine Islands for projects in renewable energy, energy efficiency, sustainable water and wastewater management and green buildings.

AC Energy Inc., the power generation arm of the Ayala Group, has also raised $410 million from the issuance of the first climate bond initiative-certified US dollar green bonds in Southeast Asia.

Likewise, RCBC has issued P15 billion worth of fixed-rate ASEAN green bonds due 2020 and P8 billion worth of fixed-rate ASEAN sustainability bonds due 2021, while state-run Development Bank of the Philippines raised P18.12 billion via the issuance of Series A ASEAN sustainability bonds due 2021.

“Investors are keen to get their hands on Philippine credit regardless of format.  When one combines attractive credit fundamentals with green or sustainability factor, this has proven to be a very attractive proposition for investors,” she said.

Pastor pointed out the Philippines is an attractive proposition from a credit fundamentals perspective after receiving its latest credit rating upgrade from S&P Global Ratings to BBB+ or just a notch below the much coveted A grade.

“The Philippines remains an attractive proposition from a credit fundamental perspective and well sought after. Investors are keen to get their hands on Philippine credit regardless of format,” she said.

She said the Philippines has been leading in the ASEAN context as Indonesia was represented by a single issuer in addition to the $1.25 billion it raised this year, while transactions in Malaysia and Thailand are in private placement format.

“When you are talking about public offerings and transactions with scale, the Philippines has been a clear leader in ASEAN,” Pastor said.

According to Pastor, the global market for green, social, and sustainability bonds is expected to hit between $225 billion and $250 billion next year.