* Property developer Longfor joins recent rush of
environmentally friendly bonds
By Ina Zhou
HONG KONG, Feb 27 (IFR) - Longfor Properties last
week printed the first Green paper from a developer in China's
interbank bond market, joining a fast-growing pack of issuers
even as uncertainties remain over the market's long-term
China's Green bond market has expanded rapidly since the
government gave its blessing to the asset class in late 2015 to
address mounting pollution. New China offerings accounted for
one third of global Green issuance in the past year, according
to data from rating agency China Chengxin.
The issuer base is rapidly diversifying and includes large
state-owned banks, financial leasing firms, car makers, water
utilities and wind-power companies.
However, there has been no corresponding emergence of a
class of socially and environmentally conscious investors,
raising questions about the "greenness" of the market.
"China's Green bond market is built in a top-down manner,"
said Liu Xinhe, a Green bond analyst with China Chengxin. "Some
investors of Green bonds had expectation that regulators would
introduce genuine benefits such as tax rebates, but it is
uncertain whether/when they will happen."
FIRST, OR LAST?
Longfor Chongqing Enterprise Development, an onshore subsidiary
of Hong Kong-listed Longfor, priced bonds of 3.04 billion
renminbi ($442 million), split into 1.6 billion renminbi
five-year non-call three notes at 4.40 percent and 1.44 billion
renminbi seven-year non-call five paper at 4.67 percent.
The issuer, a AAA credit to Shanghai Brilliance, intends to
use the proceeds for environmentally responsible construction
The offering, registered under the National Development and
Reform Commission's Green bond regime, prompting some to
speculate that such notes may offer developers a loophole to
issue onshore paper.
It arrived at a time when other property developers have
faced delays, or even rejections, of their funding plans as part
of China's efforts to rein in surging property prices.
However, a banker familiar with the deal said Longfor's
could also be the last Green offering from the sector unless
restrictions on developers' access to financings are relaxed.
Longfor's plan for the Green issue was submitted to NDRC in
May 2016 and was approved last autumn, just before regulators
started to curb massive fundraisings from developers, he pointed
The banker also said that Green bonds in general did not
bring any cost savings for issuers when compared with regular
Last July, Longfor Chongqing Enterprise Development issued a
700 million renminbi five-year non-call three bond at 3.06
percent and a 3 billion renminbi seven-year non-call five at
3.68 percent on the Shanghai Stock Exchange.
"Market conditions have shifted significantly since last
July, so we cannot really compare the pricing, but, in general,
we did not feel investors saw the Green bond differently from
regular corporate bonds,” said the banker.
China Securities was the lead underwriter on the offering,
while Citic Securities and CICC were joint lead underwriters.
Besides Longfor, three financial institutions - China
Development Bank, Huarong Financial Leasing and Wuhai Bank, a
local lender in Inner Mongolia - have printed their first Green
bonds in the past two weeks, raising a total of 7.5 billion
The four issues boosted Green bond and ABS offerings in
China's domestic market to 215.88 billion renminbi between
January 2016 and February 22 2017, according to China Chengxin.
That made up roughly 30 percent of total Green issuance globally
in the same period.
Market participants said momentum in Green bond issuance
would be sustained, primarily due to regulatory encouragement
and profile-raising on the part of issuers.
In China, a bond is classified as Green if the projects
where proceeds are invested are deemed by a third party, such
as a credit rating agency, audit firm, or consulting firm, to
meet criteria on NDRC's Green list or a green catalogue
published by the Green Finance Committee of China Society for
Finance & Banking (GFC), a body under the supervision of the
People's Bank of China.
The green label, however, does not provide an incentive for
mainland investors to buy the bonds.
"Unlike in the international market, where there are Green
investors, investors in China simply look at yields when
examining Green bonds," said another Beijing-based underwriter
with a Chinese bank.
He said there were a few cases where Green bonds achieved
slightly tighter pricing than regular bonds from the same
issuers, but that the outcome was due to orders given to
maintain business relationships and not to a green halo effect.
"Sometimes, issuers may ask favours from relation banks or
investors to support their Green bond offerings – to make the
profile-raising deals look even better," he said.
With appraisal fees for Green bonds dropping sharply in the
past year, interest had grown, particularly from big corporate
issuers, market participants said.
"A Green bond is a great point for their social
responsibility reports, so they don't mind spending an extra,
say, 70,000 renminbi, to get a Green label," he said.
(Reporting by Ina Zhou; Editing by Daniel Stanton and Vincent