FW: RHB FIC Fixed Income Strategy - 9/2/18

 

 

9 February 2018

Fixed Income Strategy

¨      Prospects of Green bonds/sukuk

¨      SUMMARY:

¨      2017 was a hallmark year as we saw issuers embarking on issuances of Green sukuk. In the corporate credit space, maiden issuances of Green sukuk by Tadau Energy followed by Quantum Solar Park were both well received from investors as it compliments Social Responsibility Investments (SRI). Going forward, given the greater need and increased awareness of Environmental, Social and Governance (ESG) standards in relation to bonds/sukuk issuances, we expect promising growth prospects within this segment of the credit issuance space.

¨      Appeal of Green bonds/sukuk as an investible asset class is expected to rise further. The appeal of Green bonds/sukuk grew in tandem with the rise of ESG standards for bonds/sukuk as well as other investible asset classes. Greater emphasis embracing the core values of ESG have emerged amongst investors and issuers, as we opine ESG resonates and complements the true essence of value investing. On a more pragmatic reasoning, the opportunities offered by eco-friendly renewable technologies offers a good avenue for issuers to embark on the Green bonds/sukuk route as a mode of issuance. Championing initiatives to preserve the environment are indeed well lauded, and works positively well to elevate further investor relation engagements for most institutional investors and corporate issuers.

¨      Recent Green bonds/sukuk continues to skew towards project financing but is expected to shift to other sectors given the need to deploy resources and ongoing infrastructure developments. On a broader perspective, most of the current outstanding Green bonds/sukuk in general are project financing in nature with issuances primarily linked to the revenue stream of earmarked projects within the power sector space. Climate Bonds, a not-for-profit, organisation funded by governments and financial institutions focuses on the study of Green bonds, is one of the larger accumulators of Green finance. According to Climate Bonds, the total issuances of Green bonds globally has already breached USD340bn as at end January 2018 and has thus far been issued in 29 different currencies. Climate Bond expects total Green bond issuances to reach c.USD1trn by 2020.

¨      Malaysia and Singapore remains as leading economies within ASEAN that have embarked on Green bonds/sukuk issuances. In the ASEAN region, corporate issuers from both Malaysia and Singapore continue to lead the green finance space. CDL Developments Limited embarked on issuances of local currency bonds in ASEAN in April 2017, while DBS Group Holdings Ltd followed 3-months later with the first hard currency issuance in the region. Meanwhile issuances of Green bonds/sukuk have garnered strong interest in Malaysia with a series of Green sukuks issued towards the end of last year

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