New World Development has become the first real estate developer to launch a 10-year US$200 million sustainability-linked bond, using the funds to help it achieve full use of renewable energy for rental properties in Greater Bay Area by 2026.
The proceeds of the bond will be allocated to New World’s long-term sustainability initiatives, as well as general corporate purposes, the company said in a statement.
“Businesses must take timely action to combat climate change,” said Adrian Cheng, executive vice-chairman and chief executive of New World. “We look forward to more real estate players taking bold but necessary steps to create shared value with all stakeholders and protect the environment.”
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New World will “contribute to a cleaner future for the next generations,” Cheng said, as it “expands in the Greater Bay Area” and targets to achieve 100 per cent renewable energy for rental property in the region, comprising 11 cities in southern China including Hong Kong and Macau.
The focus on sustainability is part of the “human-centric” approach charted by Cheng since taking over from his father in the driving seat of one of Hong Kong’s largest conglomerates, with businesses from retail sales to telecommunications and real estate. The approach can help unravel the complexities of a new generation of consumer behaviour and make New World more sustainable and powerful in the future, he said during a November interview.
The 13 properties – with a combined gross area of 762,000 square metres (8.2 million square feet) involved include New World’s K11 Musea and K11 Atelier of Victoria Dockside in Tsim Sha Tsui, as well as the K11 Art Mall in Guangzhou and the K11 Atelier in Guangzhou.
If New World does not meet its target of 100 per cent renewable energy on the designated rental properties by 2026, then the company will buy carbon offsets worth 0.25 per cent per year, according to the statement.
The carbon offsets could cost US$500,000 per year on a US$200 million bond, which could potentially decrease New World’s pre-tax profit by up to US$2.5 million over the remaining five years of the bond, plus the extra cost of renewable energy, said David Webb, a gadfly shareholders’ activist in Hong Kong.
“It makes no difference to the bond returns, so to bond investors, this is just a regular bond coloured green,” said Webb, adding that Link Reit in Hong Kong had also sold green bonds. “The costs impact shareholders, unless renewable energy is cheaper anyway, in which case the company would naturally buy it to save money and then they won’t need to purchase the carbon offsets.”
Webb doubted if the use of renewable energy could boost the properties’ appeal to tenants.
“Maybe they think tenants will pay more for space in a building that uses renewable energy, but most rational tenants would not,” added Webb. “Maybe the management likes to put corporate awards ahead of profits.”
Environmental, social, and corporate governance (ESG) refers to the three central factors in measuring the sustainability and societal impact of an investment. Some investors include ESG as one of their investment criteria.
The market has increasing attention on ESG and studies have found that companies with higher emphasis on ESG have higher ability in management, said Sam Chi-yung, chief strategist at Plotio Securities. The coupon rate of 3.75 per cent is not too expensive on the company, Sam added.
“This can attract some investors who emphasise on ESG. Some funds may want to show they focus on and satisfy requirements of ESG,” added Sam.
The market starts to recognise the new initiatives of the third generation of management as the K11 project has been well received, Sam added.
The 10-year US$200 million bond with a coupon rate of 3.75 per cent was oversubscribed by six times at its peak, with “strong participation from international ESG investors” including renowned fund managers, asset managers and insurance companies across Asia and Europe, according to New World.
The banks involved in this transaction were JP Morgan and UBS, as joint global coordinators, joint bookrunners and joint structuring agents.
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