China International Capital Corporation acted as the lead underwriter for China’s first “carbon neutral” green financial bond issued by China Development Bank (CDB), China’s top policy bank. This 3-year bond, with an issuance size of CNY 20bn and a coupon rate of 3.07%, was offered to global investors through the Bond Connect scheme on March 19.
Earlier this year, six Chinese state-owned utilities and infrastructure companies issued the nation’s first batch of carbon-neutral bonds totaling 6.4 bn yuan, the six issuers are China Three Gorges Corp., China Huaneng Group, State Power Investment Corp. Ltd., China Southern Power Grid Co., Yalong River Hydropower Development Co. and Sichuan Province Airport Group. Underwriters of the debt instruments are Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Industrial Bank, Agricultural Bank of China and China Citic Bank.
Carbon-neutrality bonds are a new type of green bonds. The National Association of Financial Market Institutional Investors (NAFMII), a self-regulatory organization for the interbank market backed by China’s central bank, said in a notice released on March 18 that bond issuers should use all of the proceeds raised from carbon-neutrality bonds to fund the construction, operation and acquisition of projects that can help reduce carbon emissions. Eligible projects include wind power, hydropower, electric buses, and the renovation of buildings and industrial production lines to make them more energy efficient. Issuers are also allowed to use the bond proceeds to repay debt related to such projects.
However, it is important to note that China’s bond market is fragmented due to being overseen by two different regulators. The interbank bond market is regulated by the central bank, while the exchange bond market is supervised by the China Securities Regulatory Commission (CSRC). The CSRC has not yet released any regulation that requires carbon-neutrality bond issuers to use all the proceeds for green-project related purposes.