In a landmark move that underscores Taiwan’s commitment to sustainable finance, Far Eastern New Century Corp (FENC), one of Taiwan’s leading conglomerates, has partnered with KGI Securities to launch the nation’s first sustainable development bond. This initiative marks a significant milestone in Taiwan’s financial markets, aligning with global trends in environmental, social, and governance (ESG) investing.
The Bond Structure and Financial Details
The sustainable development bond, issued by FENC and underwritten by KGI Securities. The issuance involved exchangeable bonds for NT$1 billion of Asia Cement Corp (亞洲水泥) and NT$1.5 billion of Far Eastern Department Stores Co (遠東百貨) with a term of five years. This bond is the first of its kind in Taiwan, designed specifically to fund projects that advance sustainable development goals (SDGs). The issuance is expected to set a precedent for future financial instruments aimed at fostering sustainability within the region.
The bond has a maturity of 5 years, with a coupon rate of 1.25% per annum. Given the bond’s sustainable development focus, it is structured to appeal to institutional investors with ESG mandates, such as pension funds, insurance companies, and asset managers who are increasingly integrating ESG criteria into their investment processes.
Taipei Exchange released the guidelines for sustainable development bonds in December last year, allowing convertible bonds to be issued within the scope of sustainable development bonds, with an aim to expand the market for sustainable development bonds. The FENC exchange bond was listed and began trading on the Taipei Exchange on 7 August 2024.
Allocation of Proceeds
Proceeds from the bond will be allocated to projects that align with the United Nations’ Sustainable Development Goals. FENC has committed to channeling the funds into areas such as renewable energy, energy efficiency, sustainable water management, and green building initiatives with targets such as reducing greenhouse gas emissions by 50 percent, growing green products to 50 percent and utilizing 50 percent green feedstock by 2030
Impact and Market Reception
The issuance of this bond is a critical step in Taiwan’s financial market evolution, reflecting a growing recognition of the importance of sustainable finance. It also positions FENC and KGI Securities as pioneers in the local market, demonstrating leadership in the integration of sustainability into corporate finance.
Market reception has been overwhelmingly positive, with the bond being oversubscribed by 1.8 times, highlighting the strong demand for sustainable investment opportunities. This demand is indicative of a broader trend where investors are increasingly seeking to align their portfolios with their values, particularly in terms of environmental and social responsibility.
Role of KGI Securities
KGI Securities, as the lead underwriter, played a pivotal role in structuring and marketing the bond. Leveraging its extensive experience in the Taiwanese capital markets, KGI ensured that the bond met stringent regulatory standards while also appealing to a broad base of ESG-focused investors. Their role extended beyond traditional underwriting, involving extensive collaboration with FENC to ensure that the projects funded by the bond would have a measurable impact on sustainability.
Implications for Taiwan’s Financial Market
This bond issuance could serve as a catalyst for further developments in Taiwan’s sustainable finance sector. By demonstrating the financial viability and investor appetite for ESG bonds, FENC and KGI Securities are likely to inspire other Taiwanese corporations to explore similar instruments. Moreover, the success of this bond may prompt regulatory bodies in Taiwan to consider creating a more robust framework for sustainable finance, including incentives for issuing and investing in green and sustainable bonds.
Global Context and Future Outlook
Globally, the sustainable bond market has seen exponential growth, with more than USD 1 trillion in green bonds issued as of 2023. Taiwan’s entry into this market, through the FENC-KGI bond, signals its intention to be a significant player in the global ESG finance arena.
Looking ahead, FENC has indicated plans to issue more sustainable bonds, potentially expanding into other areas of ESG, such as social bonds and sustainability-linked bonds. These initiatives will likely broaden the scope of sustainable finance in Taiwan, offering more opportunities for investors to support projects that generate positive environmental and social outcomes.
Conclusion
The issuance of Taiwan’s first sustainable development bond by FENC and KGI Securities marks a watershed moment in the country’s financial history. It not only underscores the growing importance of sustainable finance in Taiwan but also highlights the role that innovative financial instruments can play in driving forward the sustainable development agenda. As more investors and corporations in Taiwan and beyond recognize the value of ESG, the momentum behind sustainable finance is likely to accelerate, creating a more resilient and equitable global economy.
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