Indian companies raise record $3 bn via ESG overseas bonds

ESG (Environment, Social and Governance) is the flavour of the season from Tokyo to Toronto, and Indian firms raising committed debt overseas are riding the wave to significantly lower costs and bring on board a wider set of investors.

In the first quarter of this year, six local companies sold a record $3 billion worth of global ESG bonds, compared with $1.27 billion in the whole of last year, show data from Bloomberg.

“Globally, investors have a mandate to deploy money in ESG compliant-papers leading to a surplus pool of liquidity, which in turn is pulling funding costs down for local issuers,” said Pramod Kumar, managing director & Head of Banking at Barclays Bank India. “They want to convey their support for environmental causes to regulators and stakeholders.”

Globally, companies raised $492 billion in 2020 compared with $33 billion in 2015 reflecting a sharp spike in sales of those securities. During 2019, companies mopped up $265 billion.

Companies that sold those papers include GIC-backed Greenko, Hero Future, Delhi International Airport (DIAL), Morgan Stanley-owned Continnum Energy and ReNew Power.

, too, launched an ESG issuance Thursday for about $250 million.

Back home, ESG is gaining momentum. Bankers estimate at least $7 billion such bond sales in 2021. Corporates keen on lowering their costs may increasingly tweak their businesses to gain advantage of the rising pool of funds under the ESG umbrella.

“ESG continues to remain a critical focus for institutional investors, part of which is also driven by their own end investors,” said Madhur Agarwal, head of debt capital market, JP Morgan India, which assisted companies in almost all ESG bond deals this year. “We have seen a surge in institutional investors coming out with dedicated green/ ESG funds and some large investors have also been vocal about no new investments in non-green sectors such as thermal power/ coal mining. Indian issuers are increasingly exploring ESG bonds to take benefit of this demand and at times it also leads to better pricing.”

The ESG bonds offered investors returns in the range of 3.85-6 percent, less than that promised by the vanilla offerings from the same issuers.

“The steps taken by various governments to be in compliance with the Paris Accord is one big reason for the rising popularity of green bonds,” said Sandeep Bhattacharya, India project manager at Climate Bonds Initiative, a global certifying body. Another big driver is the presence of funds which can be invested only in green assets – in the west. That also explains why most of the green bond issuance is offshore.”

Bonds are listed in global stock exchanges, including Singapore. The demand for bonds was demonstrated in the secondary market that has seen yields fall 5-15 basis points after listings, although the US Treasury benchmark is on an upward trend.

When bond yields fall prices rise.