Short Position – Green bond, O&G funding, Going the EV way


Green bond

ISSUANCES of inexperienced bonds are on an increase. Governments, banks and companies are issuing them and there appears to be adequate investor-curiosity for the debt papers.

Some inexperienced bonds are issued to fund particular initiatives akin to waste remedy crops or to construct photo voltaic farms. Others are being issued with a common focus in thoughts akin to to assist organisations attain their sustainability objectives.

This week, Hap Seng Consolidated Bhd issued the first tranche of its inexperienced bonds. It is taking a look at areas akin to safeguarding the nicely-being of staff and their office, limiting the influence of its enterprise operations on the surroundings, and assuaging the financial and social disparities in Malaysia.

Recently, CIMB Bank Bhd grew to become the first Malaysian financial institution to challenge a sustainable improvement objectives bond in the worldwide capital markets. Proceeds from the US$500mil (RM2.1bil) will probably be channelled to initiatives akin to reasonably priced housing, startups and small and medium enterprises, public faculties and hospitals, inexperienced mass transit, local weather resilient buildings and infrastructure, forestry and wildlife conservation initiatives, in addition to Covid-19 and different international pandemic financing, the financial institution stated.

In Thailand, main seafood processor Thai Union Group PCL has additionally been issuing inexperienced bonds. The firm stated the issuance was in the direction of “blue finance” – financing for initiatives benefiting oceans and the seafood business as a complete. Expect extra inexperienced bonds to be issued as the world strikes in the direction of its sustainability objectives.

While there’s a rising variety of buyers looking for publicity into inexperienced bonds, they ought to make sure that the inexperienced bonds they’re investing in don’t fall in need of the highest sustainability requirements.

This is particularly so in the common function inexperienced bonds. Investors ought to make sure that the issuers of such papers don’t bask in “green washing” which may come about when events reap the benefits of a scarcity of clear and credible definitions and targets, lack of verification and poor disclosure necessities.

Hence what is required is credible and customary definitions and targets that are science-primarily based and significant. There additionally must be unbiased verification, ongoing monitoring and correct reporting.

O&G funding

MANY oil majors have been shifting their capital spending from conventional oil and gasoline (O&G) exploration actions and going into low-carbon emitting ventures.

Coastal Contracts Bhd appears to be bucking the pattern. It is taking a giant wager on an O&G venture in Mexico, committing virtually RM1bil to it.

This week, Coastal Contracts stated it was proposing to offer monetary help of as much as US$220mil (RM924mil) to its three way partnership firm in Mexico, Coastoil Dynamic SA de CV.

The monetary help is to fund the development of an onshore gasoline conditioning plant dubbed the EMC Papan Project and to offer working capital for its preliminary operations.

Last month Coastal Contracts stated it inked a cope with a unit of Petroleos Mexicanos, a Mexican state-owned petroleum firm, for this venture, noting that there was a contract worth of about RM4.5bil.

The EMC Papan Plant is a part of the Mexican authorities’s plan to make gasoline accessible to each individual in the nation.

Coastal Contract is in a web money place of some RM105mil however that isn’t sufficient, therefore the firm should increase funds.

In truth, Coastal Contracts is probably going going to must assume a debt quantity that’s greater than the firm’s current market capitalisation of RM840mil, driving up its gearing degree to 0.62 occasions.

Coastal Contracts has stated that the cash will probably be raised by way of internally generated funds, financial institution borrowings, the issuance of bonds or although venture financing.

One wonders why Coastal Contracts must bear the burden of that RM1bil financing.

Why isn’t it capable of safe financing from different sources akin to banks? And might that in flip be on account of the reluctance of economic establishments there to fund conventional O&G corporations, in gentle of the motion in the direction of sustainability?

If that’s the case, one wonders how profitable Coastal Contracts will probably be in securing financial institution borrowings right here for the Mexican venture.

Going the EV way

THE Malaysian Automotive Association is projecting automotive gross sales to hit the 600,000 mark this yr.

After a 2021 that was wrestling with the pandemic and lockdowns, it managed to promote 508,911 automobiles – simply 4% decrease than in 2020.

This yr, the projection is an 18% enchancment from the variety of automobiles bought in 2021. That is little doubt a tricky ask as 2021 was helped by the waiver on the gross sales and repair tax.

There will probably be the related waiver in the first half of this yr, however helped by a full exemption of excise and import duties for electrical automobiles (EVs).

There is little doubt the business will have the ability to prime the gross sales of the 274 EVs bought final yr. Demand will probably be there however there’s a lot that must be carried out to make sure that the infrastructure is in place.

Without correct charging stations, the business will nonetheless have the ability to promote automobiles as many Malaysians can simply depend on EVs for his or her day by day metropolis commute.

It is the interstate journey that’s going to be difficult however there may be not less than one petrol station operator that’s beginning to provide charging bays for individuals who wish to use EVs to journey.

Next will probably be the provide of EVs. Such automobiles are in excessive demand and with the chip scarcity acutely hitting the manufacturing of automobiles, it’s price watching how the supply commitments might be met for this yr.

The key factor is the authorities’s lengthy-time period dedication in the direction of EVs.

By principally saying you’ll be able to usher in such automotive tax-free, EVs may have a value benefit in Malaysia. There is purpose why that is being carried out.

Firstly, misplaced assortment on the tax waiver must be seen in context with the petrol subsidy the authorities pays. It is nearly ringgit for ringgit however in the lengthy-run, it’s extra useful if automobiles are EVs as they may assist decrease Malaysia’s carbon footprint and speed up the nation’s environmental, social, and governance-adoption.

A ringgit misplaced at present will probably be a ringgit earned tomorrow and there’s a profit if there may be an economically-pleasant transportation business. That will assist to decrease the penality paid by the giant oil palm and petrochemical business in the nation.

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