China encourages foreign issuers to sell social, sustainability bonds
Interbank regulator pushes for the development of the ESG-linked Panda bond market
The National Association of Financial Market Institutional Investors (Nafmii) has launched a pilot programme for non-Chinese issuers to sell social bonds and sustainability bonds onshore.
SSA and corporate issuers can register with Nafmii to issue renminbi-denominated bonds that carry a social or sustainability label. They can either register specifically for their social or sustainability bond issuance, or use their existing quota for vanilla bonds after providing the relevant information.
Nafmii oversees the sale of non-financial bonds in China’s interbank market, including non-financial Panda bonds.
Panda bonds are onshore renminbi bonds sold by foreign issuers, or by Chinese companies incorporated offshore — the latter referred to as red-chip issuers. The People’s Bank of China has oversight on Nafmii, as well as Panda bonds sold by financial institutions.
Nafmii said it will set up a ‘green channel’ for registration of social or sustainability bonds. It also plans to consider the underwriting of social or sustainability bonds in its evaluation of securities houses and banks.
'Green channel' generally means a faster approval process, in both the onshore debt and equity capital markets. The Nafmii will give the first round of feedback within five business days after receiving issuers' applications, GlobalCapital China understands. But the overall registration process usually takes two to three months for a foreign Panda bond issuer, or one to two months for red-chip companies, according to an onshore DCM banker.
The launch of the social and sustainability Panda bond trials is in line with Beijing’s call for the "high quality development" of the onshore bond market, as well as the United Nations’ 2030 Agenda for Sustainable Development with 17 sustainable development goals (SDGs), Nafmii said in a Thursday announcement. Issuing these bonds in China can steer financial resources towards helping sustainable development both environmentally and socially, support the real economy, and enhance the reputation of China’s bond market globally, it added.
There have already been social-related efforts from Panda bond issuers. In March, the New Development Bank, a multilateral development bank headquartered in Shanghai, debuted a Rmb5bn 3.22% three year Panda bond aligned to the UN SDGs.
Similar to international standards, the regulator defines social bonds as those issued in the interbank market with the proceeds to be used exclusively for social projects. The proceeds for sustainability bonds must go towards a combination of green and social projects, or projects that have both environmental and social benefits.
But sustainability bonds are different from SLBs, the Nafmii stressed, given that the proceeds of SLBs can be used for general purposes, so long as the bonds’ terms are linked to the issuers’ own sustainable development goals.
In addition to standard information disclosures, issuers of social and sustainability bonds should disclose annually how proceeds have been used and provide information about the underlying social projects. Issuers should try to quantify the expected social impact, and track the actual impact if possible. Sustainability bond issuers will also need to make green-related disclosures.
The regulator is encouraging issuers to get third-party verifications and reviews of the bonds and related projects, but it is not mandatory.
Issuers’ existing frameworks — established under mainstream international principles and practices such as the International Capital Market Association’s Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines — as well as the external opinions they obtain can be used for their social or sustainability Panda bonds.