HONG KONG: A growing number of borrowers in Asia-Pacific are securing loans with interest rates tied to meeting sustainability goals, in one of the few bright spots for a depressed business lending market the pandemic.
The so-called sustainability loan market in Asia-Pacific excluding Japan took off in 2017, and borrowers have grown steadily since: 18 companies signed a total of $ 7.4 billion in loans. this debt so far in 2020, up from 16 companies $ 7.5 billion last year, according to data compiled by Bloomberg.
Debt margins increase when a borrower misses green or social goals.
Lending across the region has plunged 30% this year as the pandemic made banks more reluctant to lend.
The growing interest in sustainability-linked loans comes as demand grows for similar bonds that reward borrowers who meet targets such as greenhouse gas emissions and employee training: global sales of these. bonds have risen nearly 80% this year.
But some investors have questioned whether putting money into these vehicles is entirely ethical given that debt holders are in fact rewarded when the borrower misses sustainability goals.
Others say debt is always worth it because it prompts borrowers to improve their environmental, social and governance performance.
“While increasing margins on sustainability-linked loans may raise concerns that banks earn more from borrowers failing to meet ESG targets, the structure is not bad as a such, ”said John Corrin, Head of Corporate Finance, International, Australia. & New Zealand Banking Group Ltd in Hong Kong.
“The advantage of the structure of these loans is that the objectives must be meaningful to borrowers and lenders.”
The volume of sustainability-related lending remained at about the same level in 2020 as it was last year, as the pandemic prompted companies to focus on immediate cash flow needs and limit other types of fundraising. .
Other agreements are likely to come out of Asia. The pipeline includes food company Thai Union Group PCL, which markets an approximately US $ 291 million equivalent facility to syndication.
The outlook for 2021 depends on Covid-19 and the reopening of markets, as well as improvements to certain regulatory and incentive frameworks, said Noémie Peiffer, director of operations at investment bank APAC and expert in sustainable finance at BNP Paribas HER.
“Overall, I am cautiously optimistic,” she said.
She sees the potential in newer markets for sustainability loans, such as Indonesia, Thailand and Vietnam.
Peiffer also hopes that India, active in renewable energy and green finance, will become more active in lending linked to sustainability.
Green loan volumes for the country have more than doubled this year. – Bloomberg