Asia’s emerging green bond market could affect hydroelectric project investment

Japan, the third-largest global bond player, is now becoming involved in using green bonds to have an affect on renewable energy that will likely include hydroelectric projects.

Sumitomo Mitsui Banking Corp. (SMBC), according to Bankers Almanac, is the third-largest bank in Japan and ranked 18th in the world in terms of its assets. SMBC is issuing $500 million through the sale of green bonds on Oct. 20, pricing was on Oct. 14. It is the first Japanese entity to issue green bonds in dollar form, according to a published report from Finance Asia.

“The Development Bank of Japan was the first Japanese green bond issuer, which raised €250 million ($316 million) through a euro-denominated three-year bond in September 2014,” the report said.

SMBC issued a press release Oct. 15 that said the five-year bonds will carry a 2.45% coupon rate. The organization went on to say, “Through this issuance of green bonds, we expect to obtain funding from investors with a strong interest in the environment and society in order to finance environment-related business where further growth is expected.”

Financial pundits think SMBC is seeking to attract overseas pension funds and asset managers, which would result in a wider range of corporate bond buyers for debt denominated in foreign currencies.

According to SMBC, it will issue the dollar-denominated debt with the funds allocated for financing renewable-energy projects. Similar to its involvement in financing the US$1.2 billion 406-MW Chaglla hydroelectric power generation project in Peru on July 5, 2013, funds from this issue could help finance other hydroelectric projects.

“Globally, financial markets — both equity and debt — were worth US$212 trillion in 2010, with bonds reaching about US$93 trillion or 44% of the total,” according to the World Bank. “The largest markets were in the U.S. (32%), Western Europe (30%) and Japan (12%).”

Emerging financial markets account for about 17% and are growing fastest, particularly in China and India.

According to the World Bank, Japan joins other countries and organizations already well established in the green bond market:

− The International Finance Corp. (part of the World Bank Group) since 2005 has committed more than US$13 billion to climate-smart projects, some of which have been funded by green bonds;
− The European Investment Bank issued a US$681 million Climate Awareness Bond in 2007;
− The World Bank (International Bank for Reconstruction and Development) launched the first labeled green bond in 2008 for approximately US$440 million; and
− The African Development Bank issued a US$500 million green bond in October 2013.

Additional organizations issuing green bonds for hydroelectric projects and other renewable energy ventures include the Asian Development Bank, the European Bank for Reconstruction and Development, and the Nordic Investment Bank.

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