Appetite for peso green bonds limited — ADB

THE market for so-called “green bonds” remains unattractive for issuers even with the availability of environmentally friendly projects to fund, due to cost and demand issues, the Asian Development Bank (ADB) said.

The bank said that the Renewable Energy Act of 2008 opened a many doors for the development of renewable energy technology, such as the system of preferential feed-in tariffs, the mandated minimum percentage generation for renewable energy for power generators and distribution utilities, and tax perks.

Department of Energy data show that it has authorized 831 renewable energy projects as of June 2017 with a total capacity of 4,710.97 megawatts (MW). The total rose from 724 projects and capacity of 4,132.49 MW a year earlier.

However, the development of financing these projects through peso bonds has not gained traction.

“Philippine market participants see ample potential to issue green bonds for renewable energy and low- carbon transport, but do not anticipate rapid growth in issuance. There is no demand from domestic investors, and issuers see it as an unnecessary cost to raise capital,” the ADB said in a report, “Promoting Green Local Currency Bonds for Infrastructure Development in ASEAN+3.”

“There is large unmet demand for corporate bonds among domestic institutional investors, so issuers have little interest in incurring the additional costs for green issues when they will be able to place non- green issues without difficulty,” the ADB said.

“Both issuers and investors tend to view ESG (environmental, social, and governance) and CSR (corporate social responsibility) as largely public relations exercises,” it added.

The report also noted that while the Philippines co- chairs the Association of Southeast Asian Nations ( ASEAN) Capital Markets Forum Green Bond Initiative, “knowledge of green bonds among market participants, excluding those involved with the inaugural Philippines green bond issue, remains quite limited.”

The country’s maiden green bond offer was issued by Aboitiz Power Corp.’s AP Renewables on February 2016 and raised P10.7 billion — for which the ADB provided technical assistance. In December, BDO Unibank, Inc. sold $150 million worth of green bonds to sole investor International Finance Corp.

ADB said that benefits that the Aboitiz group received from issuing a green bond include a broader relationship with international institutional investors who place much higher priority on ESG issues than do Philippine domestic investors.

It added that Aboitiz saw additional costs for developing and implementing the green bond framework. “Completing the financing arrangements took longer than the more typical Philippine bank consortium financing.”

“The underwriter priced the issue aggressively, possibly for the prestige of doing the first Philippines green bond issue. Unusually for a Philippine corporate issue, the underwriter continued to hold the bonds on its own book more than a year after initial issuance,” the lender said.

“The pricing of subsequent Philippines green bond issues is unlikely to be as favorable for the issuer,” it added. —