Bank of China Launches Groundbreaking Transition Bond for Steel Sector Sustainability

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Last week, the Bank of China (BOC) made a groundbreaking move in sustainable financing, pioneering the issuance of a transition bond for application to steel sector activities. The bank’s Luxembourg branch released four tranches of euro-denominated notes, totaling EUR329.60 million ($348.88 million), earmarked for various steel projects in China’s central Hebei province.

According to Chaoni Huang, head of Sustainable Capital Markets for Asia Pacific at BNP Paribas, the transition bond issuance underscores the Bank of China’s comprehensive commitment to incorporating sustainability considerations across its banking operations. The collaboration with BNP Paribas, Credit Agricole CIB, and BOC as joint structuring advisors further solidified the strategic direction.

Huang acknowledged the significance of issuing notes in euros, citing the benefits of diversification and access to a sophisticated, ESG-conscious European investor base. Co-head of Syndicate for Asia ex-Japan at BNP Paribas, Winston Herrera, shared that the transition bonds were priced at EUR99.654 each with a 4.125% reoffer yield and a margin of mid-swaps plus 60 basis points (MS+60bp).

The notes, maturing in October 2026, garnered substantial investor interest, being oversubscribed 1.8 times. The majority of the investors were from Asia, constituting 77% of the issuance, with the rest hailing from Europe, the Middle East, and Africa (EMEA). The investor base primarily comprised banks and financial institutions (90%), along with supranational, sovereigns, and agencies (SSAs, 7%), and insurers and private banks (3%).

Regarding the rigorous preparation for the deal, Huang highlighted BOC’s meticulous approach, including the issuance of a clear Transition Bonds Management Statement in adherence to the International Capital Markets Association (ICMA) guidelines and various technical thresholds. She emphasized the need for investor education on the significance of participating in transition finance and its role in fostering climate-positive impact.

Despite market challenges amplified by geopolitical tensions in the Middle East, investor response remained optimistic, reflecting favorable sentiment toward China credit and ESG considerations.

Looking ahead, Huang expressed optimism about sustainability issuance for the rest of the year, emphasizing the sector’s resilience and continued growth. She cited the robust performance of sustainable bonds globally, particularly green bonds, accounting for 70% of labeled issuance in Asia and globally.

The collaborative efforts involved several leading banks, including Bank of China, BNP Paribas, Agricultural Bank of China, Bank of Communications, Barclays, and other prominent financial institutions. Unfortunately, Bank of China and Credit Agricole were unavailable for comment at the time of publication.