IFC looks to issue first peso-denominated green bonds

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Jingdong Hua, IFC Vice-President and Treasurer — IFC.ORG

INTERNATIONAL Finance Corp. (IFC) is eyeing to issue its first peso-denominated green bonds as it aims to support the local capital market and renewable energy.

“I cannot disclose more details, but hopefully within the couple of weeks, we’ll be able to issue our first peso green bond,” Jingdong Hua, IFC Vice-President and Treasurer said on the sidelines of a seminar sponsored by Official Monetary and Financial Institutions Forum during the annual meeting of Asian Development Bank (ADB) held in Pasig City.

Mr. Hua said the green bonds will be issued “to support renewable energy with one of [IFC’s] Philippine clients” and has already received the necessary approvals.

“Any bond issuance is subject to market conditions. but if the market condition is right, [then] we’re ready to proceed,” he said when asked on the timing.

However, ADB earlier said the local market for green bonds remains unattractive due to cost and demand issues.

“There is no demand from domestic investors, and issuers see it as an unnecessary cost to raise capital,” the ADB said in a report entitled “Promoting Green Local Currency Bonds for Infrastructure Development in ASEAN+3” published last month.

“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 country’s maiden green bond issuance was by Aboitiz Power Corp.’s AP Renewables in February 2016. The issuance, for which the ADB provided technical assistance, raised P10.7 billion.

In December, BDO Unibank, Inc. sold $150 million worth of green bonds to the IFC, the sole investor. Proceeds will help the bank expand lending to climate change-mitigation projects.

Mr. Hua noted that there is still room for the local corporate bond market to grow.

“The good news is there is a huge potential to develop local currency capital market to be used to diversify funding of corporate Philippines,” Mr. Hua said, adding that the current model is “bank-centric.”

“Eventually, banks will move to Basel 3, and their Basel 3 long-term financing consumes too much economic capital for banks.”

Mr. Hua said the corporate bond market in the Philippines is “less than 7%” of the country’s economy, compared with 45% in Malaysia and about 20% in Thailand.

“I’m very optimistic the Philippine bond market will follow what has happened in Malaysia and Thailand… Even if it takes a little longer to do your first bond issuance, but on the longer term, once you establish yourself as an equitable bond issuer, then you’ll have more reliable sources of diversified funding source.” — Karl Angelo N. Vidal