Toward a Regional Action Agenda

1. Toward a Regional Action Agenda

Asia Pacific Climate Week

2. Toward a Regional Action Agenda 1. Exploring new funding opportunities

Asia Pacific Climate Week

3. Threat Assessment: Climate Change hits Asia Pacific countries hard

• Low income countries in Asia Pacific
face climate change impacts
-
Floods
Droughts
Rising sea levels
Deforestation
Extreme temperatures
• Resources are scarce in these
countries
• Investment opportunities exist
• Public funds alone are not sufficient
• Global capital is abundant
Need to urgently find solutions to bring
global capital to the investment
opportunities

4. The Financing Cycle of Climate Change projects

• Phase 1: Equity
-
High risk
Proof of concept
• Phase 2: Bilateral loans
-
Supranational entities
Low return / Uncertainty
• Phase 3: Syndicated loans
-
Consortium of banks
More established projects
• Phase 4: Bonds
-
Global markets
Mature opportunities

5. Bonds markets underdeveloped in low income countries and issuance rate low

• Economic Constraints
- Undiversified economies
- Reliance on few industries
- Low level of listing of companies
- Limited public budgets
- Dependence on foreign revenues
• Political Barriers
- Maturing regimes
- Geopolitical influences
• Geographical constraints
- Remoteness
CREDIT
RISK

6. Starting Point: several countries are already “issuance”-ready

• Fiji (2017), Maldives
(2017), Philippines, Sri
Lanka, Indonesia,
Pakistan,
Turkmenistan, Vietnam
Sovereign
Bond (8/25)
Credit Rating
(13/25)
No Bond
No Rating
(12/25)
• Bangladesh, Cambodia,
Fiji, Indonesia, Maldives,
Pakistan, Philippines,
PNG, Sri Lanka,
• Solomon Is., Tajikistan,
Uzbekistan, Vietnam
• Afghanistan, Bhutan,
Myanmar, Nepal, Palau,
Samoa, Timor-Leste,
Tonga, Turkmenistan,
Tuvalu, Vanuatu

7. Case Studies: USD bonds

• GOVERNMENT OF FIJI (Ba3/B+)
Bond Size: $200 million (2015)
Bond Coupon: 6.625%
Bond Maturity: 2020
Asia-based investors: 55% - Europe: 18% - US: 27% (2015, Bloomberg)
Pension Funds: 45% / Asset Managers: 46% / Banks: 3% / Private Banks: 6% (2015, Bloomberg)
Comparison: Unsecured Term Loan due 2028: Libor+60bps (Asian Development Bank)
• GOVERNMENT OF THE MALDIVES (B2/B+)
Bond Size: $200 million (Jun-2017) + Tap of $50 million (Nov-2017)
Bond Coupon: 7%
Bond Maturity: 2022
Asia-based investors: 83% - Europe: 17% (2017, Bloomberg)
Asset Managers: 85% / Banks: 10% / Private Banks: 5% (2017, Bloomberg)

8. Toward a Regional Action Agenda 2. Green Bonds

Asia Climate Week

9. What is a “Green” Bond?

• Same as a standard Bond
- Debt instrument
- Defined maturity from the start
- Foreign or Local currency
- Coupon
- Defined parameters (covenants)
• Difference
- Use of Proceeds must be “green”
- Additional reporting requirements
- Third-party certification

10. Why do they matter?

• Rising interest from investors:
-
Fiduciary duties of managers
ESG mandates
Ethical investing
Private Investors
Sovereign Wealth Funds
High Net Worth Individuals
• Lack of diversification opportunities for
global fixed income investors

11. What do they finance?

GREEN BOND

12. Are they cheaper/more expensive?

• No real evidence of a pricing difference
- Over-subscription at issuance
- Pricing in line
- Buy and Hold investors
- New market segment
• Brown bonds will trade at a discount
over time, as seen as more “risky”
• Volumes expected to grow strongly in
the years to come

13. Opportunity: Global Green Bond issuance set to rise

• Asia Pacific can take advantage of the global
surge in Green Bond issuance
• Broad appeal: Green Bonds are not so
different from regular bonds
• Maturation process: global investors are just
waking up to this new asset class
• In Asia, China and India are issuing record
amounts, but dedicated ESG/Climate funds
will be looking for diversification
• Market mechanism is already in place
• It is a good time to get on the bandwagon

14. Case Studies: Green bonds in Asia Pacific

• GOVERNMENT OF FIJI
Bond Size: FJD 100 million = USD 50 million (2017)
Bond Coupon: 4% (5 year) and 6.3% (13 year)
Bond Maturity: 2022 and 2030
Technical assistance from the World Bank and IFC
Third Party certification
• AP Renewables
Bond Size: PHP 10.7 billion = USD 225 million (2016)
Bond Coupon: 7% - Bond Maturity: 2026
Tiwi-MakBan geothermal project
75% guarantee from the Asian Development Bank
Private placement to BPI (sale to insurance companies)
Third Party certification

15. Toward a Regional Action Agenda 3. Road to Market

Asia Climate Week

16. Bond Issuance: many stakeholders

17. Green Bond Principles: why do they matter?

• They are becoming the market standard
• Investors need to be comforted that this is not just marketing
• They focus on 4 pillars:
1. Use of Proceeds
2. Process for Project Evaluation and Selection
3. Management of Proceeds
4. Reporting
• Self-regulation
• Weak Link: supervision during the life of the bonds, reporting
A regional action is needed to ensure consistency, adherence to the
principles and financial support

18. Green Bond Principles: Regional / Local

• Under-developed capital markets in target countries
• Regional principles must be adhered to at the local level
• Suggestion: creation of Green Bond Committees at the local level
• Transfer of expertise, capacity building, project pipeline
Regional action is needed to ensure that the market knowledge is
properly transferred from the regional to the local level and the
requisite capacity is built through workshops, regional experts to
assist local teams, help from regional banks, technical experts, etc.

19. Green Bonds: how to build a pipeline of green projects

• Supply/Demand imbalance in favor of more green projects
• Need to ensure the financial viability of green projects
• New technologies bring new investment opportunities
-
Solar Energy
Wind Power
Biomass
Water Treatment
Clean Transportation
A transparent, easy-to-access pipeline of green investment projects
must be developed, alongside the tools for reporting on Green Bonds

20. How to support the emergence of Green Bonds?

Improve Market Structure for Green Bonds
1.
2.
3.
4.
5.
6.
7.
8.
Adopt Green Bond Principles at the regional level
Adopt Green Bond Principles at the domestic level
Establish local Green Bond Market Committees
Reduce the barriers of local capital markets
Reduce disclosure costs and offer tax breaks
Encourage adequate disclosure on green impact
Build analytical capabilities for bond tracking
Standardize bond/loan documentation
Pipeline of Green projects
1.
2.
3.
4.
5.
6.
7.
8.
Priority list of green projects
Set parameters for financial viability
Ensure transparency of pipeline
Establish a collaborative platform
Strategic issuance by public entities
Review mechanism in the region
Credit Enhancement techniques
Create a data warehouse
Develop Demand for Green Bonds
1.
2.
3.
4.
5.
6.
7.
8.
Reduce investment costs
Public issuance: Signaling effect
Global investor targeting
Market-led initiatives
Workshops
Educational material
Capacity building
Bond Documentation fast tracking
Collaboration
1. Regional Green
Bonds standards
2. Regional Issuance
3. Domestic network
4. International
networking

21. Grant Facility for Green Bonds

Credit Rating costs
Credit Enhancement mechanisms
Legal / Bond documentation costs
Other issuance costs (e.g.
roadshows, investor meetings,
etc…)
• Post-issuance use of proceeds
monitoring and reporting
• First-loss guarantee for securitized
instruments (e.g. SMEs)
Financial support for Green Bonds
will reinforce the development of
the local capital markets and the
population of bond issuers will rise
Grant Facility for Green Bonds
1.
2.
3.
4.
5.
Issuer-level guarantee
Project-level guarantee
Credit Rating subsidy
Subsidize issuance costs
First-loss guarantee for securitized
transactions (e.g. SMEs)

22. Concluding Remarks

• Opportunity to develop capital markets in Asia Pacific
• Attract Private Capital for new investment opportunities
• Develop “green” investments in all countries
• Respond to market inefficiencies through a targeted programme
• Impact/Cost Ratio is highly favourable
• Build on the successes of the large countries
• Regional cooperation will bring benefits to all stakeholders