Analysis & Insights
The Sustainability of Green Financing
15 Jul 2021
Maples Group had the pleasure of acting for Xiaomi Corporation 小米集团 ("Xiaomi") in connection with Xiaomi's offering of US$800,000,000 2.875% Senior Bonds Due 2031 and US$400,000,000 4.100% Senior Green Bonds Due 2051 (the "Green Bonds") issued by Xiaomi Best Time International Limited, incorporated in Hong Kong and unconditionally and irrevocably guaranteed by Xiaomi Corporation 小米集团, a company controlled through weighted voting rights and incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange. The Green Bonds offering marked Xiaomi's initial foray into the world of green financing and more broadly Environmental, Social and Governance ("ESG").
ESG – Eligible Products
The proceeds of the Green Bonds are earmarked for 'Eligible Projects' within Xiaomi’s finance framework aimed at positive environmental and social benefits. Their framework follows the green bonds and loan guidelines of the International Capital Markets Association.
Common ESG themes peppering the green finance space and, in particular, the terms of the Green Bonds offering include the pursuit of:
- Eco-efficiency - in research and development of products to achieve energy efficiency and relevant government energy conservation certification and labelling including in the United States, Europe and China.
- Eco-efficient materials in products and packaging.
- Energy Efficiency - design, installation, development and operation of infrastructure that reduce energy consumption or avoid greenhouse gas emission in operations.
- Renewable Energy - new or existing renewable energy projects including solar and wind projects.
- Pollution Prevention and Control - promoting waste classification and conversion.
- Clean Transportation - investment in property, plant and equipment and alternative vehicles, including electric vehicles.
- Green Buildings – refurbishing existing, and design or construction of new office space, commercial buildings, or surrounding communities – examples include Xiaomi's Science and Technology Park, Tencent's New City and Alibaba's Xixi Campus to name a few emerging trends of mega campuses or mini city offices.
In addition to the Green Financing Framework aimed at positive corporate environmental and social benefits, corporate green financing recognises the need to satisfy those investors with mandates or requirements to invest in securities to be used for a particular purpose. In short, the reach of Corporate Green financing extends far beyond the boardroom rather and into the investment portfolios of financial institutions, investment funds, family offices and households.
Cayman Islands and Green Financing
Xiaomi's Green Bonds offering is the latest example of corporate green financing initiatives and the Maples Group see many more Cayman Islands listed public companies following suit. As the world's most popular offshore domicile for public company listings, the Cayman Islands leads the way with listings on the Hong Kong Stock Exchange with over 1,084 Cayman Islands companies in the last ten years (representing over 81% of all listed companies) including the recent initial public offerings by Kuaishou Technology, US$6.1bn and JD Logistics, Inc., HK$24.6bn, and the HK$23bn secondary dual listing by Baidu, in each case the Maples Group acted as Cayman Islands counsel for the listco. There have also been significant recent bond offerings by Meituan (US$1.48bn), Tencent (US$1.750bn) and CK Hutchison International (21) Limited (US$850mm). Similarly, in the United States, Cayman Islands companies represent a significant proportion of listings on NASDAQ and NYSE including that of Alibaba ("BABA") which raised approximately US$25 billion, and is to date, the largest US listing from a Chinese company, on which Maples Group acted.
It is from the pool of these and other listed public companies where green financing deals will be tapped, ideally positioning the Cayman Islands to be one of the world's leading jurisdictions for green financing transactions.
As well as high-profile China listed Cayman companies, Venture Capital/Private Equity (VC/PE) companies (i.e. potential future listed companies), which typically take advantage of structuring through a Cayman Islands holding company for exits via a public listing, tend to occupy the space that lends itself to green financing. The Maples Group has recently observed the proliferation of VC/PE companies in in the areas of biomedicine, artificial intelligence, augmented reality, e-commerce, corporate services, internet finance, education and transportation.
Flexible Governance Rules – Fit for Purpose
The flexibility of the corporate governance regime for Cayman Islands companies is recognised in a public company context where there is, among other things, a requirement for companies to establish audit, remuneration, nomination and corporate governance committees to accommodate listing requirements including the need for independent director oversight. Such requirements may defer to home country practice in certain corporate governance matters. The Cayman Islands model of governance is tried, tested and internationally recognised including by the world's leading securities exchanges. Green financing takes the existing model a step further in the form of a dedicated green finance team/committee constituted by the listco to assess and select Eligible Projects that align with green financing objectives.
Constituent parties on public company deals, including shareholders and creditors take comfort that under Cayman Islands law, the directors of a Cayman Islands company owe fiduciary duties to the company as a whole, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith and in the best interests of the company. Directors must also exercise their powers only for a proper purpose. Directors also owe a duty to act with skill and care to the company. These corporate governance requirements, which equally apply to environmental, social and governance matters within the company, in particular, any corporate governance/green finance committee, afford shareholders, generally, universally recognised common law safeguards in protecting their interest in the company.
Regulation and corporate disclosure requirements in the US, EU and Asia Pacific markets are moving a pace and companies will no doubt have to remain nimble to adapt and keep pace – Cayman structures provide the safeguards and flexibility that will be needed in this fast and ever evolving (or perhaps revolving) space.
We cover listing of debt instruments and structured finance, in particular where the funding is provided through English or New York governed debt instruments.
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