China's 1st green ‘covered bond’ to be issued in London by Bank of China

The Climate Bonds Initiative (CBI) on Wednesday announced that the Bank of China (SHA:601988), or BOC, will soon issue the first green ‘covered bond’ by a Chinese entity. We are republishing the post by the CBI, which can also be found here.

The Bank of China was an active participant of the G20’s Green Finance Study Group (GFSG), which is co-chaired by the People’s Bank of China (PBOC) and the Bank of England (BOE). This participation looks to have motivated BOC to build on their green financing credentials with this senior offering.

Structure of Covered Bonds

A covered bond provides investors with a dual recourse structure; allowing claims over a dedicated ‘cover pool’ of assets, as well as the usual claim against the issuer itself (more detail on covered bonds can be found here). In this case the BOC will list on the London Stock Exchange through its London Branch, whilst credit enhancing the bond with Chinese green bonds already on its balance sheet. This structure will increase the rating of the issuance, ultimately allowing international investors to gain easy access to the rapidly expanding Chinese green bond market.

Green Credentials

BOC have indicated that this bond and the covered pool will conform to both the PBOC’s Green Bond Guidelines and the international Green Bond Principles, with proceeds being used for BOC’s green loans to assets such as wind power plants and polluted water treatments. As further evidence of the growing collaboration between the UK and China in this area, the BOC intends to incorporate terms and conditions from a GFSG inspired green bond term sheet that has been developed by UK market participants and based on Chinese, UK and global best practice.

The Last Word

It’s great to see this addition to the Chinese green finance ecosystem; the deployment of a covered structure is an important milestone. We look forward to many more!

Disclaimer: The information contained in this communication does not constitute investment advice and the Climate Bonds Initiative is not an investment adviser.

Choose your newsletter by Renewables Now. Join for free!