S.Korean green bonds draw strong demand amid ESG fever

South Korean green bonds eligible for government support enjoyed robust demand despite lower yields, as investors upgraded environmental, social, and governance (ESG) standards for their investments.

A green bond typically refers to a type of fixed-income instrument earmarked to raise money for environmental and climate projects. Starting this year, the Ministry of Environment decided to support issuers of the qualified bonds by providing interest expenses of up to 300 million won ($226,586) per year.

To reap the benefits, bonds must contribute to at least one of the following: greenhouse gas reduction, climate change adaptation, water conservation, transition to a circular economy, pollution mitigation and prevention, and biodiversity conservation.

“Demand for Korean green bonds is expected to increase further, as institutional investors have strengthened internal guidelines and standards for ESG investments,” said an asset manager.

SURGING ORDERS

Posco Future M Co., a battery materials maker formerly known as Posco Chemical Co., received 1.1 trillion won in orders — more than 3.5 times its fundraising target of 300 billion won through the sale of green bonds — from institutional investors during a bookbuilding session, according to industry sources.

The EV battery materials subsidiary of the country’s steel giant Posco Holdings Inc. initially planned to sell 150 billion won of the debt securities earmarked to finance cathode production, but doubled the amount amid expectations of strong demand.

Busan Transportation Corp., the subway operator in Korea’s second-largest city, also reportedly attracted many more bids for green bonds than its offer of 70 billion won. The company plans to use the proceeds to replace aging rail cars.

Domestic investors have flocked to Korean green bonds, which provide 3%-4% in annual yields.

Meanwhile, Samcheok Blue Power Co., a private power plant operator, failed to raise a planned 225 billion won for a coal-fired power plant through bonds that offer a 6.96% annual return.The company received only 8 billion won in bond orders.

Write to Sang Hoon Sung at uphoon@hankyung.com
 
Jongwoo Cheon edited this article.