Hyundai has become the first carmaker globally to issue conventional US dollar-denominated Green bonds, a sign that more companies are tapping the nascent but growing market to fund environmentally friendly businesses.
Hyundai Capital Services (Baa1/A-/BBB+), the Korea-based auto financing and leasing arm of the Hyundai conglomerate, which is the umbrella group for Hyundai and Kia Motors, followed a small but expanding list of global companies such as tech giant Apple into the senior unsecured Green market with a US$500m five-year bond.
The transaction, which is also the country's first corporate Green issue, priced at 150bp over US Treasuries. The coupon is 2.875%. Unlike previous Asian Green bonds that appeared to be largely focused on other benefits, such as boosting their issuers' environmentally conscious image, HCS comes one step closer to the purpose of green debt financing as it will be using the proceeds to fund car loans for hybrid vehicles.
"We've had instances where we had to prove that the use of proceeds were for green projects," said a banker on the deal. "For HCS, it was clean cut and an easy concept for investors to understand." Hyundai has high hopes for its hybrid segment, eyeing the number two spot in green vehicle makers by 2020. The first corporate Green bond from Asia was issued by Taiwan's Advanced Semiconductor Engineering in July 2014.
ASE needed to repair its environmental image after it was fined by the Kaohsiung City Environmental Protection Bureau for dumping waste into the environment a year before the transaction. Toyota Motor Credit issued US dollar Green bonds before HCS, but these were sold in an ABS format. TMC also turned to Green bonds to help borrowers finance hybrid cars. PRICING Interest from environmentally conscious investors helped HCS differentiate from Korean peers, who have recently been heavily relying on onshore investors to sell debt.
HCS attracted robust interest, rivaling Aa2/AA-/AA- rated quasi-sovereign Export-Import Bank of Korea's (Kexim) US$1.1bn order book last month.
HCS received over US$1.2bn in orders and managed to allocate 34% to the US and 19% to EMEA. The ex-Asia takeup was slightly larger than Kexim's Green bond, which allocated 52% to Europe and the US.
Initial guidance on HCS's deal was announced at around US Treasuries plus 165bp and final guidance at 150bp. The new issue concession was estimated at around 4bp over the company's 2.625% 2020s which were spotted at around G+146bp.
Fund managers were the biggest buyers at 45% followed by banks at 18% and corporates at 15%. Private banks and others took 13% and the remaining 9% went to pension funds and insurers.
The 144A/Reg S bonds are expected to be rated Baa1/A- (Moody's/S&P)
Bank of America Merrill Lynch was the green structuring agent. It also served as joint bookrunner with Citigroup and Credit Agricole.