BAY projects ESG bonds to reach B60bn
Strong demand outpacing supply
With investment and financing heading towards a green trend, the issuance of environmental, social and corporate governance (ESG) bonds is likely to reach 60 billion baht this year, with at least a 100% growth expected in 2021, says Bank of Ayudhya (BAY).
For the first nine months this year, ESG bonds issued in Thailand saw an increase compared with full-year 2019, with a combined sum of 37 billion baht from three issuers.
They were the 30-billion-baht 15-year ESG bonds issued by the Public Debt Management Office, divided into two series; PTT's three-year green bond worth 2 billion baht; and Global Power Synergy's (GPSC) green bond worth 5 billion baht, distributed among five-year, 10-year and 15-year bonds.
"We expect ESG bond issuance to reach 60 billion baht this year," said Prakob Phiencharoen, executive vice-president and head of global corporate banking division at BAY.
ESG bonds issued in Thailand have grown rapidly from their start in 2018, when they were worth 10.1 billion baht, to 30 billion in 2019.
Poonsit Wongthawatchai, executive vice-president of the ESG division at BAY, said ESG bonds are growing drastically. Financing in global markets has grown by 200-300% over the past couple of years, driven by strong demand from investors, especially institutions that have a mandate to invest in instruments and projects related to ESGs.
These days, supply levels do not meet demand. The GPSC green bonds issued were oversubscribed by 5-6 times, even though the bond's interest returns are a bit lower than the market rate.
"ESG bonds are likely to grow by 100% in the next year," said Mr Poonsit.
He said the bank has set its vision to become the best sustainable bank and a leading bank in ESG in Thailand by 2023. The bank is supported by Mitsubishi UFJ Financial Group, the parent company, which specialises in ESG, making ESG bonds and ESG loan financing two businesses in focus.
Mr Poonsit said another benefit of participating in ESG bonds and financing from the ground up is the expansion of the investor base to one that has an ESG focus.
This type of investor tends to grow fast as well, he said.
Green loans currently comprise 2.5% of total Thai corporate bonds worth 420 billion baht. This portion excludes sustainability-linked loans and social loans released for social businesses, such as hospital and schools, which the bank also provides to many projects.
"The pandemic has stimulated demand for ESG financing and investments," Mr Prakob said.
He said the bank participated in all three ESG bonds issued this year and has a target to maintain its market share in this segment.
The bank set a target to grow its green bond business by at least 10% each year over the next three years and play a more aggressive role in green loan financing.
The bank is also preparing ESG guidelines, which include establishing a set of principles for loan approval to prevent borrowers from using loans for illegal activities, and setting a target to reduce greenhouse gas emissions.