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Investor appetite grows for ‘positive outcome bonds’ on CSX

Harrison White / Khmer Times Share:
A boy drinks from one of the country’s newly installed clean water systems. KT/Siv Channa

Cambodia’s growing securities market may soon see the listing of positive outcome bonds as investor interest in them grows. These investment vehicles are commonly referred to as either green, social or sustainable bonds.

Positive outcome bonds are a form of debt that allows investors to help raise funds for certified projects with positive outcomes. Typical projects meeting that definition would include those aimed at reducing greenhouse gases to ones providing sanitation systems in local villages.

Investors can either receive a return from their initial investment via the traditional method of a pre-determined coupon rate or from an outcomes-based contract which ties investment return to the success of the project.

According to the Asian Development Bank (ADB) there has been a strong increase globally in demand for green and social bonds which has been reflected in the strong growth in the category’s bond issuances.

“Between 2016 and 2019, global issuance of green, social and sustainability bonds quadrupled from approximately $100 billion to $400 billion. There has also been strong growth in the Asean region, with the Asean Capital Markets Forum reporting the issuance of 158 green, social and sustainability bonds between December 2017 and November 2020,” the development organisation said.

The ADB has said that while Cambodia’s bond market is in an early stage of development, it has received inquiries from potential issuers of green bonds and sees a good potential for future issuances.

“However, we should not look at green and social bonds in isolation.  It is important to see this [specialised bond product] as part of a broader programme to develop the local capital market,” stated the ADB.

SBI Royal Securities Managing Director Seng Chan Thoeun said (initially) the bonds should have a simple structure that is familiar to investors and not too difficult to be implemented by issuers.

“Aspects of these bonds such as coupon rate, credit rating,and maturity should be competitive in order to be attractive to investors but because investing in them helps align an investor with their goals, they may be willing to invest at a slightly lower coupon rate than an otherwise equivalent bond,” Thoeun said.

“Moreover, there are a large number of development organisations with a specific goal to finance social and green projects and, as a result, social and green bonds can have a greater demand among them in that market than ones [that do not have that element fundamental to them],” he added.

Referring to the bond certification [process], Thoeun said, social and green bonds are typically verified by an independent party, the role of which is to verify that the bond’s use of proceeds adheres to a particular social or green bond framework, such as the Asean Standards or International Capital Market Association (ICMA) Standards for social and green bonds.

The ADB has said, “Investors want to have quantified impacts from each of the bonds to assist with demonstrating the credentials of their funds or products.  Thus, sustainable bond issuers will need to publish allocation reporting as well as impact reporting on their websites at least once annually. This will greatly enhance the transparency and disclosure of the bond, while generating positive and measurable environmental and social effects.

UN Development Programme Resident Representative Nick Beresford said, now more than ever, countries such as Cambodia need good options for raising finance and expanding fiscal space and cites issuing bonds in riels as a (crucial) and much better way to raise capital (while managing exchange risks prudently).

“As long as the bonds are properly structured and priced, investors will be keen to participate. Several factors are in our favour: low inflation, stable exchange rate and a low public debt-to-GDP ratio. Most of the existing macro-economic uncertainty surrounds how the pandemic will evolve but, given [Cambodia’s] successful [virus] containment to date and the prospect of a vaccine coming online next year, conditions look set to improve,” he added.

There are currently six companies with corporate bonds listed on the Cambodia Securities Exchange.  Their issues have raised $143 million to date. Annual coupon rates for the six listed companies’ bonds vary between 5.5 and 9 percent.

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