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New year begins with major green bond offerings – Industry roundup: 5 January

Hong Kong and Ireland launch major green bond issues

Hong Kong has sold the equivalent of US$5.8 billion in a dollar, euro and offshore Chinese yuan green bond issue, as debt markets made a strong start to the new year.

Reuters reported that the city priced US$3 billion of dollar bonds across four tenors, a €1.25 billion (US$1.3 billion) two-tranche note and a 10 billion offshore yuan (US$1.5 billion) portion, according to insiders who asked not to be identified. A further €1.25 billion was issued in two- and seven-year tranches.

The US dollar three-year bonds were sold at Treasuries plus 35 basis points (bps), 5-years at plus 70 bps, 10-years at plus 95 bps and 30-years at plus 145 bps. The final price was significantly tighter than first indicated to investors when the deal was launched.

Euro bonds were priced for the two years at midswaps plus 70 bps and seven years at midswaps plus 110 bps. The offshore yuan bonds had a yield of 3% for two years and 3.3% for five years.

The final deal size was larger than sources had told Reuters earlier this week when the transaction was expected to raise up to US$5 billion. It represents Hong Kong’s largest green deal to date.

Reports suggested that eight investment banks worked on the dollar and euro transactions and seven were mandated on the offshore yuan tranche.

Meanwhile, Ireland’s National Treasury Management Agency (NTMA) has raised up to €3 billion in fresh funding in its first debt transaction of the new year via the issue of a new green benchmark bond. Proceeds from the 20-year bonds are earmarked for environment initiatives and infrastructure.

The syndicated deal marks the first time the agency has launched its annual funding programme with a green bond, which were first introduced for Irish government debt in 2018. The Irish government has since allocated €7.34 billion to eligible green projects, so the latest issue significantly increases the amount being committed under the funding scheme.

The NTMA said that it had mandated BNP Paribas, Bank of America Securities, Cantor Fitzgerald Ireland, Danske Bank, Deutsche Bank and Nomura to manage the sale. Last month the agency announced plans to sell between €7 billion and €11 billion worth of green bonds in 2023, with no short-term treasury bill sales planned for the year.

Air France-KLM opts for ESG bonds to repay state aid

Carrier Air France-KLM is turning to a “controversial part of the ethical bond market” to repay state aid that helped it weather the coronavirus pandemic, reports Bloomberg.

The airline is presenting its sustainability-linked financing framework to investors this week and will then offer at least €300 million (US$318 million) of sustainability-linked bonds, according to an informed source cited in the report. The proceeds will be used to partially repay a senior bank loan granted by France in May 2020, said the source.

Sustainability-linked bonds, or SLBs, are "a relatively new part of a $5.6-trillion ethical debt market that grew rapidly for a decade" says Bloomberg before slowing amid last year's market turmoil. The ESG bond market has faced increasing scrutiny about how much meaningful effect it has on tackling climate change.

SLBs, whose global issuance grew tenfold in 2020-2021, "have become  controversial, criticised for weak targets and small penalties and even being eschewed completely by some of the world’s largest ESG bond investors. Unlike green or social bonds used only to fund specific projects, SLB proceeds can be used for just about anything, with companies such as European supermarket majors Tesco and Carrefour under fire for the soft targets tied to theirs.

Air France-KLM’s sustainability plan that includes reducing direct and indirect emissions as it works toward a goal of achieving net zero by 2050, according to corporate documents seen by Bloomberg. To achieve this, it plans to renew its fleet and use sustainable aviation fuels.

The state aid package Air France-KLM is repaying consists of €4 billionn of bank loans guaranteed by France, of which €500 million was repaid in 2021, and a €3 billion French state loan, according to the company’s public debt profile. The company has paid back part of the syndicated loan with banks.

According to the source Natixis, Deutsche Bank, HSBC Holdings, Société Générale and Credit Agricole are the banks working with the airline.

Bike manufacturers backpedal from China

The UK’s biggest bicycle maker is drawing up plans to shift parts of its supply chain out of China and Taiwan. Brompton Bicycle said that the growing threat of conflict between the two countries means it is preparing to source parts from other Asian countries.

The company manufactures folding bicycles in England using parts sourced from both Taiwan and China and is concerned by the deteriorating relationship between the two. Will Butler-Adams, Brompton's managing director, told the UK’s Daily Telegraph: “[If] China goes into Taiwan... what does that mean for Taiwan? And what does that then mean for imports/exports out of China?

“Taiwan probably makes the best quality, most innovative bicycle components. We are very unlike most other bike brands, where... we make most of the parts ourselves. But we still need some of those unique, very bike specific elements

“There is actually a more nuanced de-risking of the China/Taiwan supply chain rather than necessarily trying to pull everything from Asia into Europe.”

A third of Brompton's suppliers are Asian, with the remainder based in Europe. The company also has a Chinese subsidiary, Cycle Circle, that sells to consumers.

Butler-Adams told the paper that many companies are seeking to “dual source” supplies, by continue to work with partners in Taiwan and China while ensuring that operations can continue if a conflict breaks out.

He said that Taiwan-based Giant, the world’s biggest bicycle manufacturer, has “thrown down the gauntlet” to some of its suppliers by ordering them to move out of Taiwan within the next two years. “They're not saying we want you to dual-source and go to Europe, they are staying in Asia,” he added. “But they're expecting some of those companies to actually set up operations somewhere else.

“You’re not necessarily going to a different supplier, it's the same supplier but you want them then to set up a subsidiary in Thailand or Vietnam. So you’ve still got that knowledge base inside the company. But you don't want to have all your eggs in one basket.”

The Clearing House taps SWIFT for its new CEO

Payments Network The Clearing House (TCH) has named David Watson as its new president and CEO. He will take up that position at the start of February and replace current president and CEO Jim Aramanda, who is retiring after 15 years of leading .

Watson comes to TCH from the global financial messaging network SWIFT, where he has served as chief product officer. “David brings extensive payments experience, in-depth expertise in the field, and a strong track record of innovation,” said Brian Moynihan, Bank of America chair and chief executive officer and chair of the TCH Supervisory Board.

He added that Watson will continue TCH’s efforts to promote the “adoption of real-time payments capabilities and focusing on the safety, security, reliability, and efficiency of bank-owned payment systems which are critical to the financial system.”

The announcement came shortly after SWIFT confirmed the appointment of Mastercard executive Stephen Grainger as its chief executive for the Americas and the UK. Grainger previously worked for SWIFT from 2015 to 2018 in senior business development roles, before becoming executive vice president at Mastercard, leading the development and commercialisation of the company's cross-border services business.

In his new chief executive role at SWIFT, Grainger “will drive the region’s overarching direction and growth, focusing his efforts on further developing strategic customer relationships,” according to a release.

He will also help customers “transform the cross-border payment experience for their end clients, and work with securities players to improve the efficiency of post-trade processing.”

In addition to his time at Mastercard, Grainger has also served in roles at Bank of America, Citigroup and Goldman Sachs, the release added.

Denmark’s cashless society deters bank raiders

Denmark is discovering that its progress towards a cashless society has the benefit of deterring one form of crime – bank robberies are becoming a thing of the past.

Figures from an industry association Finans Danmark show that the number of holdups has steadily declined over two decades as the shift towards online transactions has led many Danish banks to abandon cash services in branches. Only about 20 bank branches still hold cash.

There were 221 bank robberies in 2000, but the number of hold-ups in Denmark had fallen to 121 by 2004. In 2021 there was only one incident and none at all last year.

There were also no attacks on Danish automated teller machines (ATMs) for a second year running in 2022, a spokeswoman for the association said, adding that financial crime had moved online, with digital fraud on the rise.

According to Denmark’s central bank, in 2021 only 12% of payments made in physical shops in Denmark were made by cash, against a figure of 23% in 2017.

By contrast US figures compiled by the FBI suggest there has been an increase in bank-related crimes in America. There were 1,964 bank robberies, burglaries and attacks on armoured cars in the US in 2021, up from 1,788 in 2020.

Saudi Arabia launches open banking lab

Saudi Arabia’s central bank, aka SAMA, said that the Kingdom’s open banking services and innovation will be encouraged through a new lab that allows businesses to test out their products against an established framework.

The service will enable consumers of financial institutions to securely share their data with a third-party provider, facilitating new and innovative services and products.

The announcement follows the central bank’s Open Banking Framework issued in November 2022, and is aimed at aiding innovation and accelerating development in the sector.

“The lab will provide banks and fintechs with a technical testing environment to enable them to develop, test and certify their open banking services to ensure compatibility with the Open Banking Framework,” the central bank said in the statement, adding: “It will create a positive impact in the industry by strengthening the partnership between banks and fintechs, improving the financial infrastructure to guarantee better use of consumers’ financial data.”

Launched in November, the Open Banking Framework includes a comprehensive set of legislation, regulatory guidelines and technical standards based on international best practices to support banks and fintechs in the Kingdom.  

The first version focused on account information services, and the second will concentrate on the payment initiation service. 

The implementation of open banking services is among the initiatives of the Fintech Strategy, one of the pillars of the Financial Sector Development Program under Saudi Vision 2030, which was approved by the Council of Ministers in May 2022

Top ten of 2022’s weakest currencies against the pound

The British pound (GBP) steadily lost ground against the US dollar in 2022, but sterling gained ground against several lesser-known currencies, reports UK trading company CMC Markets.

Its list of currencies that have been tanking against the pound is headed by the Angolan Kwanza (AOA), which between January and November 2022 lost an average of 33.12% of its value compared to the GBP. It was followed by the Russian Rouble (RUB), which lost 28.71% and the Armenian Dram (AMD), which lost 28.60%.

In CMC’s top ten of currencies that retreated most against sterling, positions six through to nine are occupied by South American currencies: the Brazilian Real (BRL), Uruguayan Peso (UYU), Mexican Peso (MXN) and Dominican Peso (DOP) each lost between 21.43% and 19.15%.

At the other end of the list are the currencies that made strong gains against sterling over the period, led by the Ghanian Cedi (GHS), which appreciated by 73.43% against the pound compared to December 2021.

Second on the list is the Sri Lankan Rupee (LKR), which gained 53.94%, while the Lao Kip (LAK) is third with 30.18%. Further down are the Ukrainian Hryvnia (UAH) and the Japanese Yen (JPY), which registered the fifth and seventh biggest gain in the last year, with 15.72% and 12.06% respectively.

ICICI Bank develops digital platform for exporters

India’s ICIC Bank announced the launch of digital solutions for exporters, a comprehensive set of banking and value-added services on a single platform.

The bank said that the suite of solutions digitises the entire export life cycle, from discovery of export markets, export finance, foreign exchange services to receipt of export incentives for micro, small and medium-sized enterprises (MSMEs) and large multinational corporations (MNCs). The initiative aims to simplify the journey of exporters by decongesting the current time-intensive manual procedures, thereby significantly improving their operational efficiency.

The set of solutions also offer industry-first facilities such as instant disbursal of Export Packing Credit (Insta EPC) and Trade application programming interfaces (APIs). Insta EPC provides export finance instantly, while Trade APIs enable smooth handling of export transactions directly from exporters’ ERP systems, thereby providing greater convenience.

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