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Smog-Choked China May Fast-Track Green Debt, Top Banker Says

  • Guotai Junan underwrote 11% of $27 billion onshore green bonds
  • Tax cuts ‘would be a natural first step,’ Julius Baer says

China’s top underwriter of green bonds said the government may accelerate approvals in 2017 as the nation battles a toxic wave of smog.

Guotai Junan Securities Co. said the government should boost incentives for notes with proceeds earmarked for environmental projects, after a People’s Bank of China researcher said it may recommend tax breaks for investors. Chinese firms including banks, automakers, developers and power producers sold a world-leading 186 billion yuan ($27 billion) of the debt in the domestic market in 2016, including the nation’s debut offering onshore.

“This affects the air we breathe, it affects everyone,” said Huang Baoyi, general manager in the debt financing department of Shanghai-based Guotai Junan, which managed 11 percent of 2016 issuance. “The government should support and encourage green bond investors.”

Dirty air forced more than 60 Chinese cities to issue health alerts this year, delaying hundreds of flights and encouraging consumers to stay at home. China plans to invest 2.5 trillion yuan in renewable energy through 2020 and outlined measures to channel funds toward reducing pollution at the G20 meeting in Hangzhou in September. President Xi Jinping’s speech at the World Economic Forum in Davos on Tuesday will be watched for signs China will take global leadership in fighting climate change as the U.S. retreats.

Ma Jun, chief economist at the PBOC’s research bureau, said in March the monetary authority will recommend steps such as waiving tax for holders of the notes, though no such policy has been introduced. The central bank hasn’t responded to faxed questions.

‘First Step’

"I think it is likely and would be a natural first step by the government," said Magdalene Teo, head of fixed income research Asia in Singapore at Bank Julius Baer & Co., a Swiss private bank that includes responsible investing principles in its analysis. “Offering tax breaks to bond investors will incentivize issuers such that they will pay a lower coupon and at the same time help change the mindset of enterprises towards sustainable investments.”

The world’s most-populous nation accounted for $31.3 billion of the $78.1 billion in total global green bond sales in all currencies last year, data compiled by Bloomberg show. HSBC Holdings Plc, which ranked 5th in managing those deals, sees issuance around the world reaching between $90 billion and $120 billion this year. It’s starting a new unit to help mobilize sources of sustainable finance.

“China is central to our focus on sustainable financing, having set out a clear path to a lower carbon economy,” said Alexi Chan, global co-head of debt capital markets at HSBC. “Market-based reforms are aligning the financial system with China’s green objectives and stricter environmental standards are being enforced.”

An HSBC survey published last month showed three-quarters of 300 investors planning green investments globally said they lack credible opportunities and quality research. The PBOC’s Green Bond Guidelines, which insist funds get independent assurances and regularly audited disclosure from issuers, are a “very good step forward,” Chan said.

Click here to read about HSBC’s new unit

New incentives will be needed to encourage more sales, said Guo Shizai, head of bond innovation department of Haitong Securities Co., the fifth-ranked underwriter of such debt onshore.

“Green bond issuers don’t enjoy enough benefits,” Guo said.

— With assistance by Xize Kang, Ling Zeng, and Judy Chen

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