Sustainable finance, Ibor transition and China bond investment take centre stage

Sustainable finance, moving to risk-free rates (RFRs), and the further liberalisation of China’s capital markets will all remain a focus for Crédit Agricole CIB (CACIB) in Asia-Pacific (Apac)

Banks, investors, regulatory bodies, businesses, non-governmental organisations and governments are becoming attuned to evaluating investments and corporate performance through an environmental, social and governance (ESG) lens. The past year saw exponential growth for the global sustainable bonds and loans market, featuring the emergence of green, social, sustainability and sustainability-linked bonds, and respective loans. As of November 30, 2021, total sustainable bond issuances hit a record US$869 billion. And, as of November 10, 2021, global green loan issuances stood at $41.7 billion.

John Luk, Crédit Agricole CIB

“There is growing recognition that the value of ESG extends beyond pure financial returns and that financial instruments can provide the necessary funding to alleviate global climate change,” says John Luk, head of emerging markets trading in Hong Kong at CACIB.

As the leading financial institution for sustainable finance, CACIB is well placed to offer advice and expertise to help corporates, financial institutions and sovereigns improve sustainability performance. As of November 8, 2021, CACIB ranked number one in global sustainable bond league tables for accumulative issuance volume from 2017–2021 year-to-date. It was also 2021’s number one bookrunner for Greater China international investment-grade sustainable bonds, and was the top lender for global green loans for 2018–2021. In addition, CACIB was the structuring adviser for several green and sustainability sovereign bond transactions, including the German Green Bund, the French Green Obligation Assimilable du Trésor and green bonds for Hong Kong, South Korea, Hungary and Italy.

“CACIB assists issuers and borrowers that seek to finance environmentally and socially impactful projects, and those looking to communicate their sustainability strategy and diversify their investor base,” says Luk. 

At the core of CACIB’s sustainable banking business is a team of experienced ESG experts based in New York, Paris and Hong Kong. They maintain strong relationships with both ESG and specialised-impact investors who pursue dedicated environmental and social objectives. Furthermore, CACIB provides tailor-made ESG derivatives to corporates and financial institutions seeking to enhance communications on sustainability strategy. Sustainability derivatives are indexed on the ESG performance of counterparties, with performance measurements based on key performance indicators and related ESG targets pre-agreed in derivative contracts.

“Counterparties could be positively impacted if targets are met, or negatively impacted if targets are not met. Sustainability-linked derivatives give clients high visibility in sustainable finance and demonstrate their commitments to ESG initiatives,” Luk explains.

Facilitating Ibor transition

Luk explains that CACIB is confidently managing its internal rates transition process while also assisting clients in a smooth transition away from interbank offered rates (Ibors) to alternative reference rates (ARRs).

“For new deals, we are putting restrictions on the usage of Libor and offering clients new products based on new RFRs. As for legacy deals, we are prioritising the migration of the four Libors – GBP, EUR, CHF, JPY – and we will address USD Libor on a best-effort basis. Our sales team is helping clients amend existing contracts to include robust fallback provisions or assess master agreement repapering needs,” Luk says.

CACIB has completed a number of milestone ARR deals in Asia. In 2021, it transacted the first CNY cross-currency swap against the USD secured overnight financing rate (SOFR) index with Bank of China for a China-based client, and it also transacted CNY against JPY Tokyo overnight average rate (Tonar). This year also marked its successful clearance of the first CNH cross-currency swap against USD SOFR on the Hong Kong Exchange over-the-counter clearing platform.

Supporting mainland bond investors 

CACIB’s global footprint and its infrastructure demonstrate its capability in facilitating cross-border capital flows. Its appointment as the designated market-maker for Southbound Bond Connect by the Hong Kong Monetary Authority in September 2021 is a testament to its global leading position. The scheme promotes the development of Hong Kong’s bond market, while making the city a gateway for capital flows between China and other countries.

China’s continuous liberalisation of its capital market will create opportunities, and Luk believes CACIB’s strengths in green and sustainable finance, CNH and HKD bond issuance, private placements and euro-based credit solutions will meet Chinese investors’ needs, while its RMB cross-border derivatives capability can help manage RMB risk for international investors.

With heightened expectations for a swift economic recovery in Apac – and easing of regional travel restrictions – CACIB is cautiously optimistic that the aforementioned client activities will gradually ramp up, unlocking more opportunities to support its clients’ evolving needs.

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