As passenger traffic to the northern part of Asia rebounded after countries fully reopened following the COVID – 19 pandemic, Singapore Airlines posted a record half-year profit on Tuesday( Nov 7 ) reflecting strong travel demand. The city-state’s regional aircraft reported that online income increased from USS$ 922.6 million reportedContinue Reading
New York-headquartered financial services provider, MSCI, announced yesterday (October 30) via media note two leadership appointments across the firm’s Asian client coverage teams.
Ryoya (Tera) Terasawa has been appointed as head of Japanese client coverage, based in Tokyo. Meanwhile, Chitra Hepburn has taken on the role of head of South and Southeast Asia client coverage, from Singapore.
Terasawa’s new role takes immediate effect and sees him report to Kazuya Nagasawa, head of Asia Pacific (Apac) client coverage. He will lead the team’s commercial activities in the Japanese market, managing key client relationships.
“Tera will lead MSCI’s go-to-market strategies, drive revenue growth across new business and renewal targets, and represent MSCI in Japan. Teras will also partner closely with key stakeholders and product management globally to deliver a cohesive, solutions-driven strategy for our clients in Japan,” a spokesperson for MSCI told FinanceAsia.
Prior to his new role, Terasawa spent over 23 years with JP Morgan, most recent serving as head of Japan sales and marketing, dealing with institutional clients. His past expertise spans areas including fixed-income derivatives sales, and equity derivatives trading and structuring.
“We will continue to strengthen commercial success in the Japan market and capitalise on accelerating growth across all client segments in Japan,” the spokesperson noted.
In Singapore, Hepburn started her new South and Southeast Asian role on October 16, also reporting to Nagasawa. The new post is an expansion of her current remit as Asia-based leader of environment, social and corporate governance (ESG) and climate client coverage.
“We are confident that under Chitra’s strategic leadership, the South and Southeast Asia region will continue to scale and achieve newer heights,” the contact said. She confirmed that Hepburn will remain responsible for MSCI’s ESG and climate business across Apac.
Hepburn joined MSCI in Singapore in 2019 to lead the firm’s regional ESG and climate business, after over two years serving as managing director with software provider, ESG Global, according to her LinkedIn profile. She has 15 years of project finance experience in investment banking, and over six years of extensive experience in China, focussing on corporate development and cleantech investments.
“I am confident that we will continue to build on our capabilities to support the huge demand from our clients in the region, as institutional investors are increasingly integrating climate transition into their mainstream investment strategies,” she told FA.
MSCI is expected to release its 2023 third quarter (Q3) earnings later today, US-time.
As of June 2023, the firm’s ESG and climate operating revenues in Q2 stood at $71.2 million globally, up 29.2% from a year ago. The growth was attributed to strong growth from recurring subscriptions related to ratings, climate and screening products. Meanwhile, MSCI’s total operating revenues in 2023 Q2 increased by 12.6% year-on-year to reach $621.2 million.
Commenting on both appointments, Nagasawa noted in the announcement: “This is an important testimony to the value we place on these Apac markets and on our growing commitment to them.”
“I am confident that their wealth of experience working across client segments and deep industry insights, will be key to ensuring we bring the best products and solutions to our established and growing client base in the region.”
¬ Haymarket Media Limited. All rights reserved.
shabby graphicsCountry Garden, the largest private estate developer in China, is thought to be the most recent real estate juggernaut to default on its international loan.
A default would be one of the largest corporate debt restructurings in the nation, with the company owing$ 11 billion(£ 9 billion ) in debt and another$ 6 billion in onshore loans.
Its potential definition raises questions about China’s ability to recover from the pandemic.
China’s real estate market, which makes up a fourth of the business, is experiencing significant problems.
According to the most recent statistics, the nation’s economy expanded 4.9 % in the three months between July and September. Compared to the 6.3 % growth in the second quarter, that is slower.
Despite Beijing’s efforts to increase cover need, the number of home sales is also lower than it was last year.
According to the most recent data, the nation’s real estate investment decreased by 9.1 % during the first nine months of the year.
According to Raymond Cheng, Standard Chartered’s North Asia main purchase officer,” This will spark our worries about the housing market in China.”
In order to regain confidence and trust in the market, markets will probably seek a more coordinated policy approach, Mr. Cheng continued.
When new regulations to regulate the amount of money that large real estate firms may acquire were implemented in 2020, China’s housing market was rocked.
With a number of other developers defaulting on their debts and abandoning empty construction projects across the nation, the government’s property industry has been affected by its economic issues.
China is also dealing with different issues, such as slow economic growth, rising regional government debts, and record-high youth unemployment.
Paris-headquartered BNP Paribas boasts a history of over 160 years in Asia and today, it draws upon a 20,000-strong team that is active in thirteen markets across the continent.
The regional effort is led by Paul Yang, who ascended to role of CEO for Asia Pacific in December 2020, as the world succumbed to the full throes of the beginnings of a three-year pandemic. As society grappled with widespread affliction, Asia’s key economies responded to rapidly evolving government direction with fervour: leaving borders closed and markets shaken.
However, as you will discover through this exclusive interview, Yang was defiant in his refusal to be beset by external challenges. Proving himself an astute leader at the regional helm, he navigated the uncertain scenario deftly, and would go on to secure solid returns for both full-year 2021 and 2022; as well as robust revenue for the first quarter of 2023.
With a view to steering the bank’s business in support of the group’s Growth, Technology and Sustainability (GTS) strategy for 2025, FinanceAsia sought Yang’s take on Asia as a key international powerhouse, and learned about the milestones of his international career to date.
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Entering Asia BNP Paribas’ forerunner, the Comptoir National d’Escompte de Paris (CNEP), was set up by France’s finance minister following the hardships endured during the French Revolution; to curb mass bankruptcy in the financial markets; and to stimulate the economy. Following signature of a free trade agreement with the British, the Comptoir sought to develop an international strategy to source the raw materials required to support the flourishment of European industry. To do so, it extended beyond its French national borders for the first time; establishing offices in Calcutta and Shanghai in 1860, independent of foreign partnership. Later, CNEP merged with the Banque Nationale pour le commerce et l’industrie (BNCI) to form the Banque Nationale de Paris (BNP). Capitalising on these regional capabilities, the bank made Hong Kong the centre of its Asian platform. |
Q: Paul, you’ve been based in Asia Pacific for the majority of your career with BNP Paribas. Can you share what has defined BNP’s corporate journey in Asia so far?
A: Well, I wasn’t there in the 1860s, but it’s true that we have had a very long presence in the region. However, I consider “modern” BNP’s presence to be quite recent. It was really the bank’s merger in 2000 that created who we are today, elevating us as France – and then Europe’s – leading financial group and the most profitable bank in the eurozone.
But regarding Asia, we’re proud to be able to say that we’ve been here for a long time, which demonstrates our commitment to the region.
In Hong Kong, for instance, we often deal with multiple family generations of entrepreneurs and tycoons. The same is the case for some of our mid-cap clients – we have dealt with their fathers. We have built a sufficient network in the region to be able to play a key role in executing succession plans and building businesses for the future. It really means something that we’ve been here for so long and to be profitable in all of the 13 markets where we operate.
These days, being relevant to your clients counts. You need a strong balance sheet, presence and scale to guide key them from their home markets into new areas. This is how we started, building our financial institutions group (FIG), then multinational and corporate (MNC) franchises,before further progressing to build scale, solutions, products and platforms.
We have developed a strong Asian presence and over the last three years, we’ve built on connectivity to improve the flows between the various corridors we participate in. We are relevant to key local participants and accompany international clients in reverse, also.
This goes for all facets of our business: whether in the corporate and institutional world, or in consumer finance. We are bigger than the sum of our parts and many things we do have relevant purpose for our clients.
Q: How does the bank’s business in Asia compare to that of the European markets (e.g. France, Italy, Belgium and Luxembourg)?
A: Understandably, our stronghold is Europe and we are significant as well in America. But overall, Asia represents a sizable portion of group business.
The bank’s longevity and strong heritage in Asia Pacific, coupled with our integrated business model places us in good stead to extend and reinforce our presence in this growth region.
In this regard, BNP Paribas’ Asia Pacific revenue contribution to the group’s corporate and institutional business is about 20%; and it will continue to grow.
Ultimately, the bank is emerging as a leading player in the region – and this brings us to a better position to aim for larger deals and more ambitious goals.
In this respect, we have grown our market share in our regions – for example, we hold dominance in markets such as Taiwan, Singapore and Hong Kong in the wealth management space, and we have recently launched an onshore wealth capability in Thailand. Asset management is developing; and our insurance business – Compagnie d’Assurance et d’Investissement de France (Cardif), has also been successful.
Where we do not have underlying domestic market strength, we choose to partner. We are humble enough to realise that sometimes it is better to do so. For example, in Asia, on the insurance side of the business we have partnered with local banking distributors. We started exploring this type of partnership around 25 years ago in markets such as Taiwan, Japan and Korea, and we are building up our strength in China, India and Southeast Asia.
The same goes for the retail side – personal finance. In 2005, we became a strategic shareholder of Bank of Nanjing in China and we are now their single largest shareholder with a 15.7% stake.
We have built core business through partnerships, but where we think that we can control the entire business because it’s part of our DNA, is on the wealth management and corporate institutional banking (CIB) sides.
Q: What are the bank’s strategic priorities across Asia over the short and long term?
A: We are a bank that tries to deliver short-term results alongside long-term goals. Long-term relationships are part of our nature from a strategy perspective, and we are not in the business of pursuing rash opportunities when things look great and then making drastic cuts in a down cycle. We have a long-term vision and try to cultivate trust and relationships with this timeframe in mind.
From a short-term perspective, we have targets around our top line to maintain cost discipline and ensure that we invest for the future. We are intrinsically risk-aware and we insist on having a good mix of new blood and older experience, to move forward prudently.
Diversification is key. When you pursue disciplined growth, you avoid temptation, fashion and fad and consequentially, mistakes. Across all markets and products, we want to be positioned as the number one European bank for CIB, the preferred partner for wealth management, insurance and asset management – and we are not far from achieving this goal.
Asia comprises a mix of developed and developing markets. Whether you look at the position we have in Japan, Australia, or Korea – or across more emerging business hubs such as Southeast Asia or China, we are well positioned there for our clients and we generate good returns.
Some of our peers will concentrate their presence at a particular local base, say in hubs. But we do not believe in guaranteeing strong, underlying growth simply by sitting in Hong Kong and Singapore and flying bankers all over the place.
The creation of local platforms is important. We have been building these in a considered manner across Southeast Asia, Taiwan, mainland China and elsewhere for the past decade and we are able to see the results. For example, we recently complemented our business mix with a securities licence in China. Once we have completed the takeover of several prime brokerage businesses from our competitors, we will see an increase in the equity cash portion of our business mix. Then there’s the joint venture (JV) we secured with the Agricultural Bank of China, which is the largest bank in the market by network and with whom we’ll be structuring investment products for retail clients.
Q: Diversification is a theme that has emerged from the pandemic to build business resilience. But are there any particular geographies or sectors that stand out as offering growth opportunity?
A: We’ve seen some volatility in the banking sector, but as a group, our corporate culture has focussed on development in a very diversified way. In terms of resilience, this sets us apart.
If you look at our group results, you will see that around 50% of our business is in the domestic retail and consumer finance market;
a third is in CIB; and over 15% is concentrated on activities such as asset gathering – from private banking to asset management and insurance. Within CIB, there’s also security services, which might not have a great cost income, but involves limited capital consumption and brings recurrent fees.
This percentage mix has been kept stable as we’ve grown across all areas and however you slice and dice our business, you will always see diversification. It’s the same for our client base – we not only serve financial institution clients but also corporates and high net worth individuals (HNWI). These three pillars are quite well balanced and offer us the means to build a sufficient product platform.
Capital market activities, including equity capital markets (ECM), debt capital markets (DCM), fundraising and advisory services can be volatile and event-driven; while another big portion of our business and effort is in transaction banking: following the flow of finance, supply chains, trade finance and cash management activities.
The interest rate surge of the last 12 -18 months has been very much beneficial to the cash management business, while monoliners who rely only on investment banking, have suffered. We have benefitted. Whatever way the world or region goes, we are naturally hedged.
Across the Asian region, our presence differentiates us from the rest. We are more than 2,500 in Hong Kong, have 2,200 in Singapore, plus a solid foothold in Japan where we’ve ranked consistently within the top five thanks to our leadership in the global macro environment, both in fixed income currencies and commodities (FICC) and across equity and credit.
In Australia, we have a dominant position in the custodian business that we started 20 years ago; we do well in China, and then we have strong ambition in India and Southeast Asia. I cannot see any market where there isn’t potential.
Q: How do you aim to grow the Asian business?
A: In the past, we have grown organically – even when we looked to secure Deutsche Bank’s prime brokerage business in 2019, it was not a typical acquisition. They were trying to expand in terms of platforms and wanted to lighten up their equity business. Meanwhile, in July 2021, we acquired another 51% of Exane, the top-rated equity research business, following a successful 17-year partnership where we had held 49%.
Both deals demonstrated ambition and keenness to complement the building blocks of our equity business.
So yes, our focus is organic over external growth. We feel it’s better to rely on organic opportunity.
Q: Which developments excite you across sustainability?
A: We’ve been involved in sustainability for over a decade, having started our sustainable finance forum (SFF) in Singapore seven years ago. I’m happy to see that what was a niche market is now very much mainstream.
I would say we have been dominating the ESG thematic, especially when it comes to corporate social responsibility (CSR). We’ve exited from carbon-heavy energy, have moved towards renewables, and we are working to lighten up our upstream exposure. It’s pleasing that every year we do more, whether green bonds, sustainable loans or other structures. We are among the top three banks in the space and even if we cannot manage to stay number one, our efforts make a positive impact across society.
Last year, we created a group of more than 150 bankers, the Low Carbon Transition Group (LCTG), to support our clients’ energy transitions. We’re experienced, so are not having to start from scratch and can support those corporates who might not know where to begin.
We recently held an electric vehicle (EV) conference where we gathered more than 300 clients, corporates and investors in Hong Kong. The topic sits well with what we want to do in the sector around mobility as an engine for growth and we think we can bring value-add to our clients.
EV adoption figures are impressive. In 2019, they accounted for 2.2% of the global total in cars sold, and rose to 13% last year. In China, the penetration figures are double. We’ve seen how this market can surprise everybody regarding adoption of new technologies. China did it with internet access, the smartphone, payments, and now EV. It’s exciting.
Q: You started in the IT department, held positions in Paris, Taipei and Hong Kong, before taking on Asia Pacific leadership at the height of the pandemic. What has shaped your career?
A: You’re right, I took the helm of the region in the middle of the pandemic. I was very fortunate to have been based in Asia for more than 20 years, so I knew the people, the teams, key clients and our platforms, which helped tremendously. During the pandemic, we adopted new technologies and forms of digital communication to stay close to our clients. We succeeded and the vast majority of our clients did also.
I think I’ve been lucky. I started in IT – I’m not sure I was good enough to stay in it, but my first business trip was to Hong Kong. I loved the place and dreamed of how amazing it would be to be based there. Thirty years later, here I am.
Like everybody, I’ve worked hard, but I was very fortunate, and at times, daring. When I wanted to switch from IT to credit, people said “No, Paul. We like you very much, but please don’t do something stupid. You already have a promising future.”
My response was to ask for a chance. I was curious to learn and probably would have gone elsewhere if I hadn’t been given opportunity. Fear around not succeeding makes you try harder and you don’t want to disappoint the people who see something in you.
A few years in, I moved from credit to corporate banking, where I was offered a great job in China – everybody wanted to be in China, but interestingly, it was a bit early – nobody was ready to do much there. So, I transferred to Taiwan to lead the corporate banking team and learned management on the ground. Doing quite well, I was later promoted to head of the territory and then after, moved to Hong Kong. That was 18 years ago!
For me, it’s been a combination of hard work, opportunity, luck and meeting the right senior people to support my development.
One memory that stands out was when the bank appointed a Hong Kong local to lead Greater China. It was a big move, as previously, the standard was someone French and male, but a Hong Kong woman took on the role and I worked for her for many years, learning from her insights. She believed in me and offered me the support to grow.
Q: What’s been the biggest highlight of your career to date?
A: This is difficult! But a key milestone was being given the opportunity to move from IT to banking. I’ve always liked a challenge – from coding, to implementing new tech systems and platforms, to what I do today.
I’ve seen many different things in my career and I have always been very curious. I’ve really cherished every opportunity I’ve had.
I’ve been very happy in the organisation and even today, it’s meaningful to partner with faces old and new. Back in 2004-2005, I had the opportunity to build a partnership in China. After much research, we invested in the Bank of Nanjing, which, two years later, was the first City Commercial Bank to list. There are many board members who I know well. It’s great for both them and me – it’s nice that our professional focus involves making core connections. It’s meaningful.
Q : If you weren’t in banking, what do you think you’d be doing?
A : Very early on, I think we all wanted to be football players! For France or Argentina – the recent World Cup rivals!
Sometimes I reflect and think I would have been pretty good at teaching. But whatever alternate path I would have taken, it would have involved international opportunity.
I grew up first in Taiwan before moving to France and it was at that point that I knew that I wanted to see the world and find opportunity to do so.
Of course, these days, when I look at my daughter evolving, I can see that there is a lot of opportunity ahead for her, more so than when I was young.
¬ Haymarket Media Limited. All rights reserved.
Fintech companies in Asia Pacific received $5.1 billion of funding in the first half of 2023, a further drop from $6.7 billion during the same period last year, a recent KPMG report has revealed.
The figure points to a “very soft” fintech funding landscape in the region, in contrast with $36.1 billion of funding in the Americas, and $11.2 billion in Europe, Middle East and Africa (EMEA), the study showed.
In terms of number of fintech funding deals, 432 were completed in the Apac region, compared with 1,011 in the Americas, and 702 in EMEA.
“The global fintech market has seen challenges, with a decline in both funding and deals,” Barnaby Robson, deal advisory partner at KPMG China told FinanceAsia.
“Public companies have changed materially, with entire industries trading at fractions of previous valuations. But founder expectations have not moved as fast, meaning private valuations are adjusting slowly as companies seek new funding,” he explained.
The report, Pulse of Fintech H1’23, aggregated data from global venture capital (VC), private equity (PE) and mergers and acquisitions (M&A) deals in 2023’s first half, and looked into various segments including payments, insurtech, regtech, cyber security, wealthtech and blockchain.
The largest fintech deal H1 2023 in the region was $1.5 billion raised by Chongqing Ant Consumer Finance, the consumer finance unit of China’s Ant Group, which faced Beijing’s pressure to restructure in compliance with regulatory limits.
“Fintech funding in China is very dry” outside of Chongqing Ant Consumer Finance’s deal, the report noted. Businesses and investors in China tend to prioritise post-pandemic recovery, waiting for outcomes from prior investments, it explained.
Other significant deals in Asia include $304 million raised by India-based Vistaar Finance, and $270 million raised by Kredivo Holdings in Singapore.
Rebound potential
Despite slowing deal activity and slashed valuation, the intrinsic value and potential of the fintech sector in Hong Kong, mainland China, and Asia in general, remained robust, Robson told FA.
Fintech firms in the area are increasingly looking at leveraging artificial intelligence-generated content (AIGC), the report identified.
“In mainland China, the focus on AI in insurtech, creditech and wealthtech is evident. Hong Kong, with its global connectivity, needs to navigate the growing challenges of dealing two different AI regimes and mainland China data onshoring rules. The diverse financial landscape and low productivity in emerging Asia, offers a fertile ground for AI-driven fintech innovations,” Robson detailed.
“AI’s potential to revolutionise fintech segments is undeniable.”
Despite the US and Europe being leaders in regtech, or regulatory technology, interest from Hong Kong and China is palpable, according to Robson.
“With the People’s Bank of China’s (PBOC) recent announcements and Hong Kong’s agile regulatory framework, it’s clear that the region is gearing up for a more transparent and efficient financial ecosystem,” he said.
China’s central bank released a set of draft administrative measures on data security management last month for public consultation, signalling the watchdog’s enhanced emphasis on data processing securities amid geopolitical tensions.
Many financial institutions are embracing regtech to improve the efficiency and effectiveness of addressing compliance and regulatory requirements, Robson noted.
In his view, the confluence of AI advancements, regulatory shifts, and a growing middle class could very likely help catalyse fintech funding in Hong Kong, mainland China as well as the broader Asia region.
But that would be possible only after “a more complete reset in multiples to get to where valuations reflect fundamentals, and market clearing prices exist”.
He pointed to late 2024 or 2025 as a likely timing for such a rebound, citing fintech being properly valued on a realistic discounted cash flow (DCF) or free cash flow (FCF) basis as a contributing element.
“It’s a matter of when, not if,”
¬ Haymarket Media Limited. All rights reserved.
The repercussions of recent black swan events are contributing to a new dealmaking landscape – one that continues to ebb and flow as geopolitical tensions rise and governments work to ensure that regional emissions fall.
As regulators respond to global inflation with interest rate hikes, market participants are adapting to the post-pandemic outlook, where the structural integrity of systemic lenders has been called into question; bank runs have been navigated; and a debt ceiling default, narrowly avoided.
“Volatility is the only constant,” Elaine He, head of Debt Capital Markets (DCM) Syndicate for Asia Pacific at Morgan Stanley, told FinanceAsia.
“Bond issuance has been slow as issuers wait on the sidelines because of uncertainty and the increasing rates environment,” Barclays’ head of Debt Origination, Avinash Thakur, motioned. “The biggest factor impacting dealmaking continues to be the US Federal Reserve’s tightening bias.”
“Even if there is a lot of liquidity in the market, the cost of borrowing is too high,” Singapore-based corporate practice partner at DLA Piper, Philip Lee, told FA.
“Most CFOs, CEOs or other corporate decision makers who are in their late 30s or early 40s, would not have even started their careers when interest rates were this high – in the late 1990s, or early 2000s. I suspect it will take some time for companies to adjust to this higher interest rate environment.”
But Sarah Ng, director for DCM at ANZ, holds some positivity amid current market uncertainty. She noted how recent headline events are influencing short-term market sentiment and shaping deal-focussed behaviour, for the better.
“We are seeing narrower open market windows. This has meant that issuers have had to adopt an opportunistic and nimble approach when accessing primary markets,” she offered.
“We did see a degree of caution and a flight to quality, especially post-Silicon Valley Bank (SVB) and Credit Suisse, but the sell-off was largely contained to specific bank capital products. What has been surprising, has been the speed of bounce-back in both primary and secondary market activities, with a robust pipeline of issuers and receptive investor base back in play,” she explained.
FA editorial board member and head of DCM for Asia Pacific at BNP Paribas, Manoj Agarwal, agreed that unexpected developments have made market activity very much “window-driven”.
“From an issuer perspective, being prepared and able to access markets at short notice, as and when market windows are optimal, has become important,” he said.
Furthermore, he noted that market recovery has been much faster this year, compared to the protracted period of indecision brought about by the Covid-19 pandemic.
“Although the year has been peppered with volatility and disruption, market efficiency is also improving, helping to reduce the impact these events have on dealmaking,” he emphasised.
Going local
George Thimont, head of ESG Syndicate for Asia Pacific and leader of the regional syndicate (ex-Japan) at Crédit Agricole, observes three notable trends emerging amid the current, Asia-based dealmaking environment.
“Issuance is broadly down across the board – in spite of good demand from the investor community. From a sectoral perspective, the notable absentees are the corporates, and local market conditions in certain jurisdictions, such as South Korea, have offered good depth and pricing versus G3 currencies.”
Citing Bloomberg data, Agarwal noted that for Asia ex-Japan, 2023 year-to-date (YTD) G3 DCM volume as of mid-June was down by 35.4% year-on-year (YoY), with 2022 already down by 54% compared to the same period in 2021.
But he agreed that South Korea displays some optimism, given that its 2023 YTD deal volumes remain flat, compared to the same period in 2022.
In fact, some of the market’s larger institutions have been quite active overseas. In February, the Korea Development Bank (KDB) issued $2 billion in bonds via Singapore’s exchange (SGX) in what constituted one of the largest public market issuances by a Korean institution in recent years.
Debt from issuers such as sovereigns, supranationals and agencies (SSA) or state-owned enterprises (SOEs) has benefitted, managing director and head of Asia Pacific Debt Syndicate at Citi, Rishi Jalan, told FA.
“We expect corporate issuance in the US dollar bond market to be a bit more robust in the second half of the year,” he explained. In the meantime, Jalan said that some issuers are selectively tapping local currency markets where financing terms are lower, such as in India, China and parts of Southeast Asia.
However, not everyone feels that Asia’s regional markets can cater to the demands of the significant dry powder at play.
“Most liquidity in the local currency market comes from the banking system,” Saurabh Dinakar, head of Fixed Income Capital Markets and Equity Linked Solutions for Asia Pacific at Morgan Stanley, told FA.
He is sceptical of the current capacity for local markets to meet the requirements of internationally minded issuers. However, he noted as an exception the samurai market, which he said had proven vibrant for some corporates with Japan-based businesses or assets.
“Larger long-term funding requirements can only be satisfied through the main offshore currencies, such as dollar securities,” he explained.
Turning to the regional initiatives that have been set up to encourage participation in Asia’s domestic markets such as Hong Kong’s Connect schemes – the most recent of which, Swap Connect, launched in May – Dinakar shared, “What we need to see is broader stability.… These developments are great, but for investors to get involved in a meaningful way, general risk-off sentiment needs to reverse.”
“There was huge optimism around reopening, post Covid-19. This has since faded as corporate earnings have disappointed and there has been no meaningful stimulus. The markets want to see policy stimulus and, as a result, corporate health improving. Performance across credit and equities will then follow.”
Sustainable momentum
One area of Asian activity that stands strong in the global arena, is ESG-related issuance.
In March, the International Capital Market Association (ICMA) published the third edition of its report on Asia’s international bond markets. The research highlighted that, in 2022, green, social, sustainability and sustainability-linked (GSSS) bonds accounted for 23% of total issuance in Asia – higher than the global ratio of 12%.
“Demand is still more than supply, and investors tend to be more buy and hold, so we’ve seen that sustainable bond issuance has been more resilient than the market as a whole,” shared Mushtaq Kapasi, managing director and chief representative for ICMA in Asia.
“ESG has come to form an integral part of the dealmaking conversation in Asia. Over 30 new ESG funds have launched here in 2023; the number of ESG-dedicated funds is up 4% YoY; and Asia makes up 11% of the global ESG fund flow as of 1Q23 – up from 5% a year ago,” said Morgan Stanley’s He.
“The Hong Kong Special Administrative Region (HKSAR) government recently came to market as the largest green bond issuer in Asia so far this year,” she added.
Discussing the close-to-$6 billion green bond issuance, Rocky Tung, FA editorial board member, director and head of Policy Research at the Financial Services Development Council (FSDC), shared that the competitive pricing contained a variety of durations and currencies that “help construct a more effective yield curve that will set the benchmark for other issuances – public and private – to come.”
This, he explained, would not only be conducive to the development of green and sustainable finance in the region, but would specifically enrich Hong Kong’s debt capital market.
“ESG-related bonds can provide issuers with an additional selling point to attract investors,” Mark Chan, partner at Clifford Chance, told FA.
“They can demonstrate the issuer’s commitment to fighting climate change for example…. Issuers with a social agenda, such as the likes of the Hong Kong Mortgage Corporation (HKMC), can highlight their mission and objectives by issuing social bonds to enhance the investment story.”
In October last year, HKMC achieved a world first through its inaugural issuance of a dual-tranche social facility comprising Hong Kong dollar and offshore renminbi tranches, which totalled $1.44 billion.
“We are also seeing more bespoke ESG bonds such as blue and orange structures,” Chan added, referring to recent deals that the firm had advised on, including the Impact Investment Exchange’s (IIX) $50 million bond offering under its Women’s Livelihood Bond (WLB) Series; and issuance by China Merchants Bank’s London branch, of a $400 million facility – the first blue floating-rate public note to be marketed globally.
FA editorial board member and head of sustainability for HSBC’s commercial banking franchise in Asia, Sunil Veetil, noted that while Asian issuance fell in most segments, green sukuk and social bonds helped sustain momentum.
“For green debt, energy was the most financed project category in Malaysia, the Philippines, Thailand, and Vietnam, accounting for more than 50% of allocation,” he shared, citing a report by the Climate Bonds Initiative (CBI).
“In Singapore, which remains the undisputed leader of sustainable finance in Southeast Asia, around 70% of green debt went to buildings, mainly for the construction of green buildings, and to a lesser extent, for retrofits and to improve energy efficiency.”
“There continues to be regulatory support for ESG bonds, including grants provided by the Asia-based stock exchanges to list green bonds,” added Jini Lee, partner, co-division head for finance, funds and restructuring (FFR) and regional leader at Ashurst.
A boom for private credit
Crédit Agricole’s Thimont told FA that Asian credit has remained resilient through recent global risk events. Private markets and funds are emerging as alternative sources of capital for those corporates with weaker funding lines, DLA Piper’s Lee observed.
Indeed, the further retrenchment of banks from lending has provided an opportunity for private credit players to swoop in and fill an increasingly large void. Globally, the sector has grown to account for $1.4 trillion from $500 million in 2015 and Preqin estimates that it will reach $2.3 trillion by 2027.
Once a niche asset class, investors are drawn to private credit’s floating rate nature which moves with interest rates and offers portfolio diversification.
Andrew Tan, Asia Pacific CEO for US private credit player, Muzinich & Co, earlier told FA that private credit players aim for investment returns of around 6-8% above the benchmark rate in the current environment.
The firm’s sectoral peers, including KKR, have argued that institutional investors should consider allocating as much as 10% to private credit. Alongside Blackstone and Apollo, the US global investment firm has added to its Asian private credit capabilities in recent years, while new players, including Tokyo-headquartered Softbank, have recently entered the market. In May, media reported that the Japanese tech firm sought to launch a private credit fund targetting late-stage tech startups and low double-digit returns.
Elsewhere in Japan, Blackstone recently partnered with Daiwa Securities to launch a private credit fund in the retail space, targetting individual high net worth investors (HNWIs).
Unlike in the US, where non-bank lenders now outnumber traditional financiers, “Apac remains heavily banked, so we expect to see ample room for private debt to grow in the region,” Alex Vaulkhard, client portfolio manager within Barings’ Private Credit team told FA.
He sees particular opportunity to serve the private equity (PE) space. “Although PE activity has been a bit slower in 2023, we expect activity to return, which will increase lending opportunities for private debt.”
Asia accounts for roughly $90 billion or about 6.4% of the global private credit market, according to figures cited by the Monetary Authority of Singapore (MAS) that highlight the market’s growth potential.
The biggest vehicle in Asia to date is Hong Kong-headquartered PAG’s fourth pan-Asia fund which closed in December at $2.6 billion.
However, overcrowding in some markets – notably India, where investors have amassed since new insolvency and bankruptcy laws came into force from 2016 – has made lenders increasingly compete for deals and acquiesce to “covenant-lite” structures, where investor protection is reduced.
But Tan, who is currently fundraising for Muzinich’s debut Asia Pacific fund – a mid-market credit strategy with a $500 million target, believes this only to be a problem in more developed markets such as Australia and is unlikely to become an issue in the wider region.
“If anything, the trend is in the direction of more conservative structures with increased over-collateralisation and stricter covenant protection,” he told FA.
Fundamentally, seasoned private credit participants are aware of the importance of covenant protection, so their likelihood to compromise on this is low, he added.
With monetary policies tightening at one of the fastest rates in modern history and recession looming in several markets, a key challenge for private credit is borrowers’ ability to service their debts.
“There is no doubt that default rates will go up and I would be cautious of cashflow lends with little or no asset backing,” said Christian Brehm, CEO at Sydney-headquartered private debt manager, FC Capital, calling for adequate due diligence when evaluating opportunities in the current environment.
“We would not be surprised to see an increase in default rates, but these are more likely to occur in more cyclical industries or among borrowers who have taken on too much debt in recent years,” Vaulkhard opined.
The managers suggested a tougher fundraising environment ahead, as the performance of fixed income instruments improves to offer limited partners (LPs) attractive returns.
What’s next?
The banking sector’s evolving regulatory landscape is also contributing to Asia’s changing DCM outlook.
Initially proposed as consequence of the 2008 global financial crisis (GFC) and with renewed rigour on the back of recent adversity across the banking sector, new capital requirements are set to be rolled out in the US and Europe as a final phase of Basel III. Often dubbed “Basel IV” for their magnitude, market implementation was originally scheduled for January 2023, before being delayed by a year to support the operational capacity of banks and market supervisors in response to the Covid-19 pandemic.
Experts caution that while more stringent banking regulation will challenge Asia’s traditional lending mix, it will also offer opportunity.
“There is a big amount of regulatory capital to be rolled out following the new Basel III rules, which will impact the type of debt to be issued,” said Ashurst’s Lee.
“We have been speaking to issuers who have been anticipating this uptrend as well in the coming years and are building in this scenario in their mid- to long-term treasury planning,” she added.
“Although the implementation of the Basel III final reform package was postponed in jurisdictions such as Hong Kong, those subject to it will no doubt be grappling with the new capital requirements already,” said Clifford Chance’s Chan, noting how its introduction will likely impact banks’ risk-weighted asset (RWA) portfolios.
“Aspects such as the raising of the output floor could potentially see some banks try to charge more for their lending,” he said.
Hironobu Nakamura, FA editorial board member and chief investment officer at Mizuho and Dai-Ichi Life tie-up, Asset Management One Alternative Investments (AMOAI), agreed that the new Basel reforms will lead to more scrupulous risk assessment by lenders, but how this will affect banks’ portfolio construction more concretely, remains uncertain.
“A heavy return on risk asset (Rora) requirements will likely impact banks’ risk asset allocations, region to region. [But] it is quite early to determine whether Asia is risk-off or -on at this stage, from a bank portfolio perspective.”
FA editorial board member and AMTD Group chair, Calvin Choi, proposed that if lending were to become more expensive for global players, there could be upside for regional banks.
“Updated Basel rules will impact global banks operating onshore, adding costs and making them less able to use their balance sheets. Local banks won’t have this constraint, so they will win market share,” he shared.
However, he noted that for those Asian banks that want to participate in overseas markets, business will become more costly and compliance-heavy. “It will keep more local banks local.”
“All of this will mean a higher cost of borrowing and less capital available to banks…. It will create opportunities for non-bank lenders such as non-banking financial institutions (NBFI), family offices and private funds to fill the gap,” said DLA Piper’s Lee.
“With stricter capital requirements under ‘Basel IV’, we anticipate that bank loan funding will become more expensive for issuers. As such, we could see a return to capital market funding from issuers who have hitherto heavily relied on loan markets this year,” said ANZ’s Ng.
Choi added that this may even lead to Asia’s bond markets being viewed as more competitive than their global counterparts.
“Overall, the DCM market has become slow and stagnated,” Nakamura observed. “However, there are areas where funding is continually needed,” he said, pointing to the energy transition space as well as digital transformation.
What exactly the new regulatory environment will mean for Asia’s market participants amid macro volatility, rising interest rates and escalating geopolitical tensions, remains unclear. But the developing outlook could offer those able to structure more creative facilities, more business; drive the advancement of Asia’s local capital markets; and support the region’s wider efforts to transition to net zero.
Proponents of private credit remain optimistic.
“Capital raising might cool down in the short-term, but the true private debt lending market is about to kick off,” said Brehm.
“We believe that there is a lot of growth ahead,” Barings’ Vaulkhard stated, sharing that conditions are likely to improve for lenders this year, with spreads widening, leverage falling, and overall credit quality enhancing.
“We are only at the start of a multi-year growth journey,” Tan concluded.
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Last week (July 26), Hong Kong Exchanges and Clearing Limited (HKEX) and the Indonesia Stock Exchange (IDX) signed a Memorandum of Understanding (MoU) marking strategic collaboration aimed at strengthening ties and exploring mutually beneficial opportunities across both markets.
According to the announcements, the partnership will see the exchanges meet regularly to develop new capital market products, including exchange-traded funds (ETFs) and derivatives; enable cross-border listings; and promote sustainable finance across the region, through shared best practices and the development of carbon markets.
The releases point to the benefits made available through enhanced cooperation, including access to the international connectivity and vibrance on offer via Hong Kong’s marketplace, as well as the talent, creativity and innovative characteristics of Indonesia’s “new economy” participants.
Discussing the news, Singapore-based Clifford Chance partner, Gareth Deiner, who specialises within the firm’s South and Southeast Asian capital markets practice, shared with FinanceAsia his take on the opportunity presented by forging a deeper connection with the market that is home to world’s largest nickel supply.
“The mutually beneficial aspect of this collaboration is that it offers access to a wide pool of North Asian institutional investors and therewith, an enhanced liquidity pool.”
Shanghai and Singapore-based Clifford Chance partner, Jean Thio, acknowledged the significant number of Indonesian conglomerates that operate outside of the domestic market and seek access to North Asia’s investor community.
She highlighted her work in 2022, advising on the spin-off IPO of Chinese dairy farm operator AustAsia Group, a subsidiary of Indonesian agribusiness, Japfa, as demonstrating this point.
“International issuers look to Hong Kong as a way of accessing international institutional capital. The new collaboration complements other regional initiatives, such as Stock Connect.”
Hong Kong and China’s central banking authorities announced in May the launch of the sixth iteration of the regional bilateral scheme, the northbound channel of Swap Connect. The initiative is the first derivatives mutual market access programme globally and opens up institutional entry to China and Hong Kong’s interbank interest rate swap markets.
In terms of the current trends permeating Indonesia’s capital markets, Deiner shared, “Historically, Indonesia’s future-facing minerals – cobalt, copper and nickel – would be exported. But now these are proving key elements of Indonesia’s onshore energy transition story, as they are core components used in the manufacture of wind turbines, solar panels and electric vehicles (EVs).”
“As such, Indonesia has implemented bans on the export of unprocessed nickel ore, in order to facilitate the development of the EV supply chain onshore.”
Deiner and his team advised the underwriters of Harita Nickel’s IDR9.7 trillion IPO on the IDX in April, which media attributed to being part of a government push to privatise state-owned enterprises (SOEs).
Amit Singh, Singapore-based partner and head of Linklaters’ South and Southeast Asia capital markets practice agreed that the newly formed “super-connection” opens the door to meaningful, increased liquidity for Indonesian companies.
“Hong Kong also gains a valuable link with the growing mining and supply chain powerhouse that Indonesia is developing into,” he told FA.
“Mining, minerals and other supply chain-focussed industries are driving Indonesia’s IPO boom in 2023,” Singh explained, pointing to his involvement in Merdeka Battery’s IDR9.2 trillion ($620 million) IPO in April. The PT Merdeka Copper Gold Tbk subsidiary owns one of the largest nickel reserves globally and has a portfolio of EV battery assets across the Sulawesi region.
“This trend is likely to continue and grow in the upcoming years, and Hong Kong is clearly seeking to position itself closely with Indonesia and its burgeoning strengths in these areas.”
Dual listings
Tjahjadi Bunjamin, Jakarta-based managing partner and head of the finance practice at Herbert Smith Freehills (HSF) partner firm, Hiswara Bunjamin & Tandjung (HBT), agreed that the MoU means that Indonesia will obtain greater access to Chinese issuers and the related international investment base.
“This is particularly important given the dominant role of Chinese companies in the EV ecosystem.”
He explained to FA that the collaboration further enables the exploration of dual listings by both parties: “Both will benefit from a more coordinated approach to listing in the two jurisdictions, as well as more clarity on listing requirements for issuers and investors.”
“Dual listings and increased regulatory cooperation will accelerate the maturation of the Indonesian capital markets, allowing them to more quickly adapt as deal sizes and investor interest and scrutiny in the market widens,” Singh added.
David Dawborn, HSF partner and senior international counsel at HBT, noted that a challenge for the partnership will involve the fact that Indonesia’s capital markets system remains primarily focussed on basic equity and debt securities.
“It could benefit from new ideas and products available through Hong Kong’s capital markets system, which is more flexible and easier to navigate in many aspects.”
In prior discussions with FA, experts have commended Indonesian regulators for their efforts to make the market’s domestic exchange more accessible and attractive as a listing destination.
In late 2021, the Indonesian financial services authority, Otoritas Jasa Keuangan (OJK), approved amendments to the listing regime to allow firms with multiple voting rites (MVR) to participate on the domestic exchange. The move signalled continued progress to bring Indonesia’s capital markets in line with other global exchanges, such as those of the US and Hong Kong, which have had dual class share frameworks in place since the 1980s.
Recent research by the Hong Kong Trade Development Council (HKTDC) citing Refinitiv data suggests that more than 70% and 25% of companies currently listed on IDX meet the minimum capital requirement for listing on Hong Kong’s GEM (which serves small and mid-sized issuers) and main board, respectively. “This implies that there is a huge potential pool of candidates for dual primary and secondary listing,” the report noted.
However, the research added that so far, “only three Indonesian companies domiciled in Indonesia are currently listed overseas, and none are listed in Hong Kong.”
Tech story
Poised to become the seventh largest global economy by 2030, Dawborn underlined Indonesia’s endeavours to become a regional leader for Southeast Asian capital markets, following its success as host of last year’s G20 summit, in Bali.
Already home to a variety of tech unicorns (companies valued at over $1 billion) including Blibli, Bukalapak, Traveloka and GoTo, Indonesia is fast-emerging as a Southeast Asian tech hub, with its internet economy expected to double in value to be worth $146 billion by 2025.
Experts suggest that Indonesia holds significant potential to elevate Asia’s prominence on the global tech stage.
“Where we are in the macroeconomic cycle, with interest rates at an all-time high following another bump by the Fed last week, the landscape is challenging – high interest rates are not the friend of the tech sector. But the minute that inflation starts to settle, I think we’re going to witness the next chapter of Indonesia’s tech story,” Deiner said.
“Traditionally, Southeast Asian companies have always thought of the US when it comes to tech, but the HKEX has worked to be increasingly accommodative for these firms and Hong Kong is starting to prove a very attractive listing venue for those active in biotech,” explained Clifford Chance’s Thio.
“So-called US stock orphan listings (where a company has no operations, investor relations or management in a particular market but chooses to list there) are becoming a real discussion point across the Asian IPO landscape. I agree that Hong Kong may become an increasingly compelling venue for tech firms. In doing so, it supports the regional sector growth story,” Deiner added.
The tech sector is also set to support Indonesia’s efforts in the sustainability space. The market published the first version of its green taxonomy in January 2022.
“The ESG frameworks and disclosure standards of listing venues have become a hot topic in the IPO execution process and in equity offering documents more generally, and the variation in ESG disclosure standards across different international markets is creating a degree of execution friction across transactions in different markets,” Deiner explained.
“I was interested to read that the exchanges highlighted ESG considerations in the MoU as this will hopefully present an opportunity for the two markets to converge on ESG standards.”
“If this leads to a greater uniformity in ESG disclosures across primary equity markets, this could really be a game changer for market activity, and would be a very exciting development to monitor,” he added.
“As Hong Kong already has more developed carbon related, ETF and derivative products and trading systems, Indonesia and the market’s investors will benefit from access to this knowhow and technology,” noted HBT’s Bunjamin.
Jakarta-based corporate partner and capital markets lead, Viska Kharisma, told FA that following the introduction of Indonesia’s Financial Services Omnibus Law in 2023, OJK has been considering marketing more types of offshore securities in Indonesia, including carbon-related instruments.
“We understand that OJK and IDX propose to issue a new carbon market trading regulation in the near future, which should facilitate access by international investors to carbon credit opportunities through Indonesian industrial and mineral companies,” she said.
Reflecting on the opportunity on offer as a result of the official partnership, Deiner shared, “Where there is a cross- or secondary listing as part of a primary offering on any two international exchanges, you’re going to have an element of friction between their respective listing standards and the requirements that one legal jurisdiction or one regulator will impose versus another – and in many ways, the art of dealmaking in large-scale equity capital market (ECM) transactions of this nature, involves getting these two pieces to fit.”
“There’s nothing particularly apparent that has created a roadblock between the markets until now, but then that’s why you have the MoU. Hopefully it will provide a robust basis to ensure that any future obstacles can be navigated or removed,” he concluded.
HKEX declined to comment beyond the press release. IDX, the Indonesian Chamber of Commerce and Industry (KADIN) and a number of Indonesian banks did not respond to requests for comment.
¬ Haymarket Media Limited. All rights reserved.
With several ESG-backed initiatives in recent years, the Philippines-based conglomerate Ayala has solidified its commitment to sustainability. Operating across verticals including energy, finance, infrastructure, and real estate, Ayala has committed to net zero greenhouse emissions by 2050. The conglomerate’s energy wing ACEN recently created the world’s first energy transition mechanism (ETM) in November 2022, backed by BPI and RCBC.
On the social front, Ayala’s GCash app and BPI’s BanKo have played pivotal roles in financial inclusion for unbanked Filipinos and small to medium size enterprises. BPI and Globe are currently reviewing their framework to consciously focus on these areas.
When it comes to governance, Ayala’s boards are working towards an appropriate level of diversity and independence. This involves maintaining high standards when it comes to transparency and disclosure.
The 190-year-old company’s social and sustainability initiatives have a long history. Albert de Larrazabal, CFO at Ayala Corporation said, “We have always aligned ourselves to national interest and had very high standards of governance and stewardship. As we must be mindful of the ecosystems we operate under, ESG in various forms has always been part of our value proposition.”
Ayala’s approach to ESG
Today, ESG-based financing is a priority for Ayala. Apart from ACEN’s implementation of the world’s first ETM, Ayala has issued a social bond with the IFC in support of its cancer hospital. Larrazabal said, “We are looking to do KPI-linked social and ESG financing, which incorporates targets into the commercial terms and conditions of the loan.”
Even during the M&A process, the conglomerate is mindful of integrating new acquisitions into its ESG framework. Ayala has also taken steps to ensure that ESG is a priority that is ingrained at the highest levels of the organisation, leveraging its membership with the World Business Council for Sustainable Development (WBCSD). The conglomerate’s board has received training which ensures they can play an active role in tracking and monitoring developments in the ESG space.
Corporates making public commitments to sustainability draw a lot of attention, not all of it positive. Asked how Ayala approaches concerns about greenwashing, Larrazabal said, “Sometimes it happens inadvertently because of incorrect measurements. That’s why we brought in South Pole. We have taken steps to ensure we are on the right track by committing to independent verification, to give people a degree of reassurance.”
Building a model for the APAC region
While the need for sustainable leaders is strongly felt across APAC, many countries in the region have a minimal contribution to emissions — the Philippines emits half the global average on a per capita basis. Larrazabal said, “Between 80% to 88% of our emissions — depending on individual businesses — are scope 3.” These emissions are defined as the result of activities from assets not owned or controlled by a reporting organisation, but which are a part of its value chain. Larrazabal said, “Our scope 3 is somebody else’s scope 1 and scope 2. We need an environment that enables, incentivises, and if that fails, penalises those who disregard scope 1 and 2.”
Many emerging markets grapple with issues similar to those facing the Philippines — adopting renewable energy, while meeting the demands of a growing population and economy. As a result, ETM-like arrangements may be embraced to a greater extent. Asked for his advice on managing such a transaction, Eric Francia, president and CEO at ACEN said, “It is important for investors to reconsider their position on coal, so long as the principles are well understood. One may be investing in a coal plant, but for a good purpose, which is enabling its early retirement.”
Offering a financial perspective on the ETM, TG Limcaoco, president and CEO Bank of Philippine Islands added, “We provided lending and brought in other institutions. We took reduced rates of returns for equity and debt exposure, which allowed us to shorten the life of the plant by 10 to 15 years. It is a big win for everyone involved.”
For more on Ayala’s adoption of ESG and a deeper insight into the world’s first ever ETM, please watch the accompanying video.
¬ Haymarket Media Limited. All rights reserved.
A version of this story was first published by sister title, AsianInvestor.
Infrastructure investors in Asia can promote a new, more ambitious role for capital in funding social and environmental development, according to Nikhil Chulani, investment director covering the industries, technology and services sectors at British International Investment.
“On the markets that we at BII focus on in Africa and South Asia, there are huge opportunities for growth and achieving greater scale,” he told an audience at the Sovereign Wealth Fund Institute conference in London in June.
“To accelerate progress in realising the potential of these opportunities, one key aspect is vision and ambition, and tapping into creative solutions via financial services sector to re-imagine the role of capital.”
The UK development finance institution currently invests between $1.5 and $2 billion per year in Asia, Africa and the Caribbean.
He noted that, as ESG investing broadens from a focus on people to include the environment, the scope of allocations, and the range of problems they address, is widening. He said developing bottom-up strategies is more important than ever.
Being able to clearly identify and articulate which problems investors are aiming to address with their allocation is crucial, he added, emphasising the need to integrate impact and financial return within an investment model.
“Having an impact doesn’t exist separately from investing, it is a core part of investing,” Chulani said, adding that, while many investors still saw the ESG potential of their investment as distinct from its investment potential, attitudes were changing.
Size matters
Michael Anderson, who was director general between 2010 and 2013 of the UK’s Department for International Development, a government department that was responsible for more than $6 billion in annual aid programmes, said that a pressing question for enterprises and projects with a social or environmental dimension was achieving the scale necessary to unlock large investments.
“It’s not that we need to do more to attract major investors, but when they are attracted they need to have the deal flow to enable large ticket sizes,” he said.
“Big investors with multibillion dollar funds can’t go after small deals,” he added. “The key challenge is thinking at a bigger scale, especially in areas beyond infrastructure.”
“There has been some good investment in green infrastructure, but not enough in other areas,” he noted, pointing to social services, social infrastructure, and businesses designed to have a positive social impact.
Anderson, who is founder and CEO of MedAccess, a social enterprise improving access to medical innovations wholly owned by the British International Investment, gave the example of essential medicines.
“The critical reason that these drugs are not getting into markets where they are needed is that the companies who manufacture them don’t find it commercially viable to sell into those markets,” he said.
Investors were essential in providing the “catalytic finance” to de-risk distribution into less profitable markets, he added.
Anderson gave the example of a recent TB drug project mediated by MedAccess, where the finance provided reduced the per dose cost from $40 to $15. MedAccess also facilitated increased production by the drug company and worked with companies to secure distribution.
“Sometimes this means lower margins [for manufacturers],” he noted.
Local opportunities
However, Ana Nacvalovaite, research fellow at the Centre for Mutual and Co-owned Business to Kellogg College, University of Oxford, speaking at the same session, said small-scale, local projects offered considerable opportunities for ESG investors, given their strong social and environmental credentials in many cases.
Such projects that are aimed at securing specific social or environmental outcomes often involve joint investment by development banks alongside sovereign and other institutional investors such as pension funds.
But those institutions best placed to provide such “blended finance” are not necessarily the biggest, Nacvalovaite observed, pointing to the example of funding for rural farm co-operatives in Rwanda.
“The [Government Pension Fund of Norway] has its hands tied, since approval is required by the ministry of finance. But Rwanda’s fund [the Agaciro Development Fund, launched in 2012] could trial this. It is the right size and Rwanda has lots of co-operatives, so they are looking at these blended finance opportunities,” she said.
Nacvalovaite said that while single project investments with a finite lifecycle might produce tangible environmental or social benefits during their lifetime, they also created challenges when they complete.
“The community that has been built up around it has to pack up and move on,” she said.
By contrast, financing co-operatives and employee-owned businesses provided longer lasting social outcomes. “We are talking about people creating their own infrastructures,” she said.
¬ Haymarket Media Limited. All rights reserved.
With several ESG-backed initiatives in recent years, the Philippines-based conglomerate Ayala has solidified its commitment to sustainability. Operating across verticals including energy, finance, infrastructure, and real estate, Ayala has committed to net zero greenhouse emissions by 2050. The conglomerate’s energy wing ACEN recently created the world’s first energy transition mechanism (ETM) in November 2022, backed by BPI and RCBC.
On the social front, Ayala’s GCash app and BPI’s BanKo have played pivotal roles in financial inclusion for unbanked Filipinos and small to medium size enterprises. BPI and Globe are currently reviewing their framework to consciously focus on these areas.
When it comes to governance, Ayala’s boards are working towards an appropriate level of diversity and independence. This involves maintaining high standards when it comes to transparency and disclosure.
The 190-year-old company’s social and sustainability initiatives have a long history. Albert de Larrazabal, CFO at Ayala Corporation said, “We have always aligned ourselves to national interest and had very high standards of governance and stewardship. As we must be mindful of the ecosystems we operate under, ESG in various forms has always been part of our value proposition.”
Ayala’s approach to ESG
Today, ESG-based financing is a priority for Ayala. Apart from ACEN’s implementation of the world’s first ETM, Ayala has issued a social bond with the IFC in support of its cancer hospital. Larrazabal said, “We are looking to do KPI-linked social and ESG financing, which incorporates targets into the commercial terms and conditions of the loan.”
Even during the M&A process, the conglomerate is mindful of integrating new acquisitions into its ESG framework. Ayala has also taken steps to ensure that ESG is a priority that is ingrained at the highest levels of the organisation, leveraging its membership with the World Business Council for Sustainable Development (WBCSD). The conglomerate’s board has received training which ensures they can play an active role in tracking and monitoring developments in the ESG space.
Corporates making public commitments to sustainability draw a lot of attention, not all of it positive. Asked how Ayala approaches concerns about greenwashing, Larrazabal said, “Sometimes it happens inadvertently because of incorrect measurements. That’s why we brought in South Pole. We have taken steps to ensure we are on the right track by committing to independent verification, to give people a degree of reassurance.”
Building a model for the APAC region
While the need for sustainable leaders is strongly felt across APAC, many countries in the region have a minimal contribution to emissions — the Philippines emits half the global average on a per capita basis. Larrazabal said, “Between 80% to 88% of our emissions — depending on individual businesses — are scope 3.” These emissions are defined as the result of activities from assets not owned or controlled by a reporting organisation, but which are a part of its value chain. Larrazabal said, “Our scope 3 is somebody else’s scope 1 and scope 2. We need an environment that enables, incentivises, and if that fails, penalises those who disregard scope 1 and 2.”
Many emerging markets grapple with issues similar to those facing the Philippines — adopting renewable energy, while meeting the demands of a growing population and economy. As a result, ETM-like arrangements may be embraced to a greater extent. Asked for his advice on managing such a transaction, Eric Francia, president and CEO at ACEN said, “It is important for investors to reconsider their position on coal, so long as the principles are well understood. One may be investing in a coal plant, but for a good purpose, which is enabling its early retirement.”
Offering a financial perspective on the ETM, TG Limcaoco, president and CEO Bank of Philippine Islands added, “We provided lending and brought in other institutions. We took reduced rates of returns for equity and debt exposure, which allowed us to shorten the life of the plant by 10 to 15 years. It is a big win for everyone involved.”
For more on Ayala’s adoption of ESG and a deeper insight into the world’s first ever ETM, please watch the accompanying video.
¬ Haymarket Media Limited. All rights reserved.
