The Hong Kong Monetary Authority (HKMA) announced on 3 May 2024 that its Green and Sustainable Finance Grant Scheme (Green Finance Subsidy Scheme) would be extended by an additional three years from 10 May 2024 and expanded to cover transition bonds and loans. [i]
Launched in May 2021, the Green Finance Subsidy Scheme provides subsidies for eligible green and sustainable debt instruments meeting the criteria set out in the HKMA’s guidance. The subsidies are divided into two categories: (i) general bond issuance costs such as legal and stock exchange listing fees and (ii) the cost of pre-issuance and post-issuance external reviews (third party opinions). Subsidies for loans are limited to the second category (external review costs). The goal of the scheme is to encourage relevant industries in the region to make use of Hong Kong’s transition financing platform as they decarbonize.
Grants for each eligible issuance include:
(i) General bond issuance costs: Half of the eligible expenses, up to HK$2.5 million where the bond, its issuer or its guarantor(s) possess a credit rating[ii]; or HK$1.25 million otherwise.
(ii) External review costs: Full cost of eligible expenses, up to, for each eligible issuance:
· HK$800,000 in total for all pre-issuance external review and post-issuance external review services;
· HK$250,000 for all pre-issuance external review services; and
· HK$200,000 per year for all post-issuance external review services for the first three years from the date of the eligible issuance or up until the maturity of the issuance, whichever is shorter.
Instruments eligible for both types of subsidies include green, social, sustainability, sustainability-linked and transition bonds. Loans are only eligible for external review cost subsidies.
Bond issuers cannot have issued any green, social, sustainability, sustainability-linked or transition bonds in Hong Kong within the previous five years, excluding issuers that also act as arranger for the eligible bond issuance. Each entity can apply for subsidies for no more than two eligible loans .[iii]
The criteria for eligible issuances include the following:
· Issued in Hong Kong (see criteria below);
· Issuance size of at least HK$1.5 billion (or the equivalent in foreign currency) in order to apply for the general bond costs subsidy or HK$100 million (or the equivalent in foreign currency) in order to apply for the external review costs subsidy.
Furthermore, bonds must be (i) lodged with and cleared by the Central Moneymarkets Unit (CMU) operated by the HKMA or (ii) listed on The Stock Exchange of Hong Kong Limited (SEHK) and issued, at issuance, to either (i) 10 or more persons or (ii) less than 10 persons none of whom is an associate of the issuer.
Loans and bonds must have a pre-issuance external review demonstrating alignment with internationally recognized principles, standards or guidance, as provided by a recognized external reviewer.
Transition loans and transition bonds must have:
· a developed and appropriately disclosed transition plan (or equivalent disclosures on climate transition strategy) at the entity-level;
· a pre-issuance external review demonstrating the adoption of internationally-recognized transition finance principles, standards or guidance (including the transition plan related elements under such principles, standards or guidance), as provided by a recognized external reviewer; and
· for use-of-proceeds instruments, pre-issuance external review demonstrating alignment with an applicable internationally-recognized taxonomy, as provided by a recognized external reviewer.
A bond is considered issued in Hong Kong if half or more of the lead arrangers have substantial Hong Kong debt capital market (DCM) operations as measured by the size of an arranger’s DCM operations, its use of Hong Kong service providers, its plan for developing its DCM operations in Hong Kong, and “other relevant factors” (not listed in the guidance). Bond arranging activities comprise originating and structuring, legal and transaction documentation preparation, and sale and distribution.
A loan is considered issued in Hong Kong if at least half of the loan amount is borrowed from Hong Kong-based lenders.
[i] Press release: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/05/20240503-9/; scheme: https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2024/20240503e7a1.pdf.
[ii] Given by one or more of Fitch Ratings, Moody’s Investors Service, Rating and Investment Information, Inc, and/or S&P Global Ratings.
[iii] Including all eligible loans (issued before, on or after 10 May 2024) where the entity acts as borrower or guarantor.