A Japanese company successfully raised funds for the production of electric vehicle parts using green bonds.
Meidensha Corporation (Meiden) recently secured funding worth US$55 million through the sale of green bonds. The funds raised in this exercise will be used for the mass-production of electric vehicle parts, the company reported. The bonds have a maturity of 5 years and offer a yield of 0.260% per annum. The company claimed that it became the first private enterprise to have received certification from the Climate Bonds Initiative.
The Japan Credit Rating Agency, Ltd (JCR) rated the bonds as BBB+ in their general financial creditworthiness, while the Agency awarded the highest rating available to a green bond in the country — Green 1. The Agency looks at two parameters to assign ratings to green bonds. These ratings vary from Green 1 to Green 5, with Green 1 being the highest green finance evaluation.
The two parameters used by JCR are, ‘Greenness Evaluation’ and ‘Management, Operation and Transparency’. While the second parameter is self-explanatory, Greenness Evaluation is simply the percentage of proceeds allocated to be used for green projects. JCR defines ‘Green Projects’ as those having positive impacts on the environment and contribute to Sustainable Development Goals.
The list of investors in the green bond issue included several Japanese banks and entities. While the yield may seem too frugal, it is still 36 basis points higher than the current short-term interest rate set by the Bank of Japan at -0.1%.
Meiden is a large manufacturer with products including power transmission and generation equipment, equipment for railways, water treatment systems, industrial production equipment, and logistical equipment. However, the proceeds of this green bond issue shall be used for the production of equipment related to electric vehicles.
The company manufactures automotive testing systems as well as drive systems for EVs. These drive systems and their variants are being used by Mitsubishi, Peugeot, and Citroën in their electric cars.
While green bonds targeted at electric vehicles are quite rare, with several of them focused on renewable energy or public transport, the East Asia region has seen a few of them in the recent past. One of the most prominent was issued by Hyundai Capital Service. The company raised US$500 million at an annual yield of 2.875% for five years in 2016. Proceeds from the bond issue were reported to be earmarked for consumer loans for hybrid cars. The bond issued was adjudged as the ‘best green bond’ in North Asia Region by Hong Kong-based financial magazine, The Asset.
The International Finance Corporation sees the East Asia Pacific region as having the highest potential for investment in electric vehicles. The IFC estimates the global investment potential in electric vehicles at US$1.6 trillion by 2030, with the East Asia Pacific region accounting for a massive US$569 billion potential. So, it would not be surprising if we see more such green bonds being issued from companies and entities in this region in the near future.
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