Banking & Finance

Green dollars

Alibaba’s new bond issue comes with ESG tranche


Alibaba’s launches megabond

“The outbreak of the epidemic has made us understand more about the relationship between humans and nature,” explained Tencent founder, Pony Ma in mid-January. Few would disagree, including the World Health Organisation, as it continues its detective work into the origins of Covid-19 in Wuhan.

Ma posted his comments on WeChat as part of a broader announcement championing Tencent’s commitment to speeding up its “carbon neutrality plan”. It hasn’t laid out specific targets but says it will outline a roadmap for its carbon reduction programme this year.

All three of the BAT troika (Baidu, Alibaba, Tencent) are starting to ramp up their ESG (environment, social and governance) credentials. Yet while they are often applauded for their world-beating technology, they very clearly lag the FAANGs (Facebook, Amazon, Apple, Netflix and Google) in their ESG activities. The BAT is only just starting to discuss its carbon footprint. Google has been carbon neutral since 2007 and aims to be carbon free by 2030.

Microsoft has gone one better. After reaching its carbon neutral target in 2014, it plans to be carbon negative by 2030. Amazon has set a slightly later carbon neutral target of 2040 but it is well on its way to hitting its 100% renewable energy target for 2025. Apple has already achieved the same for its data centres and is now in the process of making its entire supply chain carbon neutral.

Less well known, Chindata – the biggest of China’s data centre firms – also announced a carbon neutral target in January, with the Nasdaq-listed firm setting a 2030 deadline.

In early 2020, a report by Greenpeace and the North China Electric Power University highlighted that China’s data centres had started to transition towards renewables as their energy source but concluded they have some way to go in disclosing their total energy consumption and greenhouse gas emissions.

Greenpeace has tried to put pressure on the world’s technology giants to make more environmentally focused investments, arguing that their huge profits bring a responsibility to act quickly.

Last week Alibaba started to make its own more concerted push in ESG after it cited energy efficiency, green buildings and renewable energy sources as beneficiaries of a debut $1 billion sustainability bond. The New York and Hong Kong-listed group is the first Chinese tech giant to issue a sustainable bond of this type. In doing so, it joins Google’s parent Alphabet, which was the first of the FAANG’s to issue one last June.

The 20-year sustainable tranche formed part of a larger $5 billion bond, only the third US dollar-denominated public bond that Alibaba has issued to date. The deal – with tranches of between 10 and 40 years – didn’t start out trading well in the secondary market, despite garnering a peak $38 billion order book. And the sustainable tranche was the worst performer of the four, dropping nearly a point over the first couple of trading days.

This was almost certainly because the A+/A1 rated group pushed the pricing of this tranche the most aggressively, narrowing the gap over Treasuries compared to the other three tranches. Investment bankers often talk about a ‘greenium’ – better pricing for ESG bonds for issuers because investors are readier to lend money at slightly lower rates. That doesn’t appear to have been the case in this instance.

Nevertheless, the deal has set an important benchmark for the Asian ESG sector and it cannot be long before Tencent steps forward with a sustainability bond offering of its own. In recent years, it has issued one jumbo deal per year, typically in the second quarter.

The response to the Alibaba bond from investors has also been seen as a test of sentiment for the company amid unprecedented regulatory pressure from the Chinese government, which was angered by comments from Jack Ma, the Alibaba founder, about the banking sector last year. The immediate impact of Ma’s remarks was the halting of affiliate Ant Group’s $37 billion stock market listing and a slump in the Alibaba share price. However, the shares have recovered some of their losses in recent weeks and the company has just reported better-than-expected earnings, providing another much-needed boost (see WiC527). 

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