Green bonds in Hong Kong – a deep dive

Hong Kong just launched a fresh batch of green bonds worth around HK$15 billion (roughly US$1.9 billion).

Green bonds in Hong Kong – a deep dive
People walk past a screen displaying the Hang Seng stock index at Central district, in Hong Kong, China October 25, 2022. REUTERS/Lam Yik/File Photo

The backstory: Hong Kong has been on a green finance journey for a while now, mainly through something called green bonds. Green bonds are like eco-conscious loans – you lend your money to be used in projects that make the world greener, like wind farms or cleaner public transport. It's a way for investors to support green initiatives and still make some money.

Hong Kong government issued its very first green bond in 2019, raising US$1 billion for clean transportation and renewable energy projects. Big players like MTR Corporation hopped on board, diving into the green bond market to fund eco-friendly infrastructure and renewable energy projects.

More recently: Last year, the Hong Kong government ventured into retail green bonds, which was quite a success. The first batch sold out quickly, pulling in HK$32.88 billion (US$4.2 billion) from nearly half a million eager investors. These bonds are all about giving Hong Kong residents a chance to invest in their community while enjoying steady returns, according to Christopher Hui Ching-yu, the Secretary for Financial Services and the Treasury.

The development: Hong Kong just launched a fresh batch of green bonds worth around HK$15 billion (roughly US$1.9 billion). These bonds have a three-year term and pay interest every six months. Interestingly, the interest rate is tied to the city’s inflation, guaranteeing investors a minimum of 4.75%, which is a significant jump from the 2.5% offered last year.

The minimum investment for potential investors is HK$10,000 (US$1,270) and Hong Kong residents can subscribe for up to HK$500,000 (about US$64,000) worth of bonds. The subscription window will close at 2 p.m. local time on September 28, and the bonds are set to be issued on October 10, followed by listing on the Hong Kong stock exchange the next day.

HSBC and BOC (HK) are co-arrangers for this retail bond issuance and there's a possibility that the total issuance could expand to HK$20 billion (US$2.5 billion) depending on market conditions, according to the Hong Kong Monetary Authority. The cash raised from these bonds will flow into Hong Kong's Capital Works Reserve Fund, fueling crucial environmental and sustainable development projects.

Key comments:

"The government [has decided to] issue retail green bonds again this year so as to facilitate market development and at the same time, offer members of the community investment options with steady returns," said Christopher Hui Ching-yu, the Secretary for Financial Services and the Treasury earlier this month.

"To support the sustainability of green finance, it is pivotal for the government to launch retail green bonds continuously," said Gordon Tsui Luen-on, director of the Hong Kong Securities Association. "It may encourage the public to participate and promote a low-carbon economy and environment improvement."

"The favorable response from global investors indicates not only their recognition of Hong Kong's credit strength, but also their support of Hong Kong's determination and efforts in promoting sustainable development and combating climate change," said Paul Chan, Financial Secretary of Hong Kong, when Hong Kong released the first green bonds in 2019.