AC Energy powers up a first for Philippine green market

The new year has started strongly for sustainability and green financing in Asia. Korea Midland Power Co sold a $300m green bond on January 14, with other deals also in the pipeline, including a sustainability-labelled bank capital trade from Kookmin Bank.

“People are viewing sustainability more and more favourably,” said a syndicate head on the AC Energy trade, speaking of both investors and issuers. 

The Philippines seems keen to jump start its green market in 2019. National treasurer Rosalia V de Leon has told local media that the sovereign is considering opportunities in green bonds. This could be a good sign for southeast Asia’s green bond market, which has lagged far behind China, despite efforts by International Finance Corp to be an anchor investor in deals. The IFC, for example, sold the first peso-denominated internationally rated green bond last year. It was also the sole investor in BDO Unibank’s $150m green note, printed at the end of 2017.

Things are slowly but steadily looking up. The Philippines’ Rizal Commercial Banking Corp launched a local currency green bond issue this week, while AC Energy opened the green international market for the country on Tuesday.

AC Energy’s foray certainly made a lot of sense. The energy platform of conglomerate Ayala Corp aims to generate at least half of its energy from renewables by 2025.

Sole global co-ordinator HSBC, alongside bookrunners and lead managers Bank of America Merrill Lynch and CLSA, launched AC Energy’s 2024 notes in the 5.125% area on Tuesday morning following a roadshow last week.

Like many other Philippine companies, AC Energy is unrated. While the lack of rating, and implied sub-investment grade status, may hold some investors back, it makes little impact for a modestly sized deal, said a Hong Kong banker on the trade.

“The companies are very comfortable in their ability to fund domestically… and to fund in dollars,” he said.

Because of AC Energy’s parent company, the leads looked to other large Philippine conglomerates for comparables, said the Hong Kong banker. Their notes were trading in the mid-4% area to around 4.75%. Credit analysts at Nomura looked to parent Ayala as a comparable, noting that its perpetual non call 2022 was trading at a yield to maturity of 5.3%. Analyst Annisa Lee put fair value for its subsidiary’s notes at 5.3% to 5.4%.

Orders for the trade peaked around $500m, and final guidance was tightened to 4.875% to 5%. The deal was closed at the tighter end, with a coupon of 4.7% and at 99.451. AC Energy raised $225m, within its target range of $200m to $300m, said the Hong Kong banker.  

Philippine investors took 80% of the deal, while offshore Asian accounts took the other 20%. Bank treasuries took 77%, fund managers and insurers 14%, and private banks 9%.

The senior unrated Singapore-listed notes were issued by AC Energy Finance International and guaranteed by AC Energy. The guarantor is 100% owned by Ayala. If Ayala is not a majority owner of AC Energy, a change of control put option will be triggered at 101.

There is also a cross default clause in Ayala’s perpetual bond that will be triggered if AC Energy, or another material investee company, defaults on more than $30m. Because the new notes are unsecured, they are “deeply and structurally subordinated to the [operating company’s] debt,” wrote Nomura’s Lee.

The proceeds from the sale will be used for general corporate purposes in line with the company’s green bond framework, including working capital, funding investment activities, development of projects and on-lending within AC Energy’s group.

BAML served as the green structuring agent on the Reg S deal, while BPI Capital, BDO Capital and China Bank Capital Corp were the domestic lead managers.