Stevenson, Wong & Co. advised Jiangmen City Haina New Energy Investment Partnership (Limited Partnership) (江門市海納新能源投資合夥企業 (有限合夥)) (“Jiangmeng New Energy”) on its cornerstone investment in the global offering of CALB Co., Ltd. (中創新航科技股份有限公司) (Stock Code: 3931) (“CALB”).

CALB was officially listed on the Main Board of The Stock Exchange of Hong Kong Limited on 6 October 2022 and has raised HK$9.9 billion from its initial public offering, making it the third-largest initial public offering by fund raised in Hong Kong this year. CALB’s market capitalisation upon listing was HK$10.1 billion. CALB is a leading new energy technology company mainly engaged in the design, research and development, production and sales of EV batteries and ESS products. CALB is one of the top 10 companies in the global EV battery industry and is the third-largest EV battery maker in the PRC.

Jiangmen New Energy is a limited liability partnership established under the laws of the PRC and is principally engaged in the investment in the new energy industry with its own funds. The ultimate beneficial owner of Jiangmen New Energy is the Administration Commission of Jiangmen City (江門市人民政府國有資產監督管理委員會). Jiangmen New Energy invested in RMB700 million as cornerstone investment in CALB, making it the single largest cornerstone investor in value in the listing of CALB.

The SW team was led by corporate Partner Mr. Hank Lo and Senior Associate Mr. Terence Lau, supported by Paralegal Ms. Bethany Zhang.

Please contact Mr. Hank Lo or Mr. Terence Lau for any enquiries or further information about this transaction.

1. Introduction
Green bonds are a financing option for issuers which the proceeds will be used to finance new or existing green projects that deliver environmental benefits (the “Green Bond(s)”), ¹and is the dominant subset of the Environmental, Social and Governance (“ESG”) space where investors seek to align socially responsible interests along with investment returns. Keeping in pace with the rapidly growing global Green Bond market, Hong Kong has introduced certain reforms to enhance its attractiveness as a Green Bond market. Following our discussions on the Hong Kong debt capital market (see our news update here) and the SFC Agenda for Green and Sustainable Finance (see our news update here), we would like to take this opportunity to provide an overview of Green Bonds and sustainability-linked bonds.

2. Characteristics of Green Bonds
Four main types of Green Bonds exist currently as defined by the International Capital Market Association (“ICMA”)² :

I. Standard Green “Use of Proceeds” Bond: standard full-recourse-to-the-issuer unsecured debt obligations where the proceeds are designated for eligible Green Projects.

II. Green Revenue Bond: non-recourse-to-the-issuer debt obligations where the credit exposure is to the pledged cash flows of the revenue streams, and where the proceeds can be used for related or unrelated Green Projects.

III. Green Project Bond: a project-specific bond where proceeds are used to finance the construction of a single asset or a portfolio of projects, and the investor has direct exposure to the risk of the project(s) with or without potential recourse to the issuer.

IV. Secured Green Bond: a secured bond where the net proceeds will be exclusively applied to finance or refinance one or more specific Green Projects.

Green Bonds enjoy the advantage of allowing investors to satisfy their ESG requirements and green investment mandates, as well as diversifying their investment portfolio.

Generally speaking, it is also more resilient to market downturns and has been welcomed by investors during the COVID-19 pandemic with a more favourable risk-return trade-off. For issuers, launching green bonds may allow them to diversify their investor base, enhance the credibility of their environmental strategy, and boost their reputation by contributing to sustainable development.

3. The Hong Kong market for Green Bonds
In 2021, Hong Kong’s labelled green debt market recorded a year-on-year growth of 6.5 times, the highest growth since 2016, reaching a total issuance of US$19 billion. ³) The market is mainly led by the government and corporate issuers who were responsible for approximately 93% of the green debt instruments in 2021.

3.1. Government Issuance
In 2018, the HKSAR Government set up the Government Green Bond Programme (“GGBP”) with aims to demonstrate the Government’s support for sustainable development and determination to combat climate change, set a benchmark for green bond products in the market, provide a good example for other potential green issuers, and promote awareness of and Hong Kong’s international profile in green finance. It has been issuing green bonds regularly since its inaugural deal in 2019. As at 31 July 2022, the HKSAR Government has issued almost US$10 billion worth of green bonds under the GGBP. In May 2022, the inaugural retail green bond launched by the HKSAR Government under the “Government Green Bond Programme” attracted a subscription capital of HK$20 billion.

Moreover, the HKSAR Government launched a three-year programme named the “Green and Sustainable Finance Grant Scheme” (“GSF Grant Scheme”) in May 2021 which aims to subsidize eligible bond issuers and loan borrowers to reduce the financial burden related to the external review and issuance costs. The GSF Grant Scheme has been well received by the industry in Hong Kong. As of April 2022, more than 60 applications have been approved, and HK$70 million has been granted to issuers to aid with their green bond issuances.

3.2. Corporate Issuance
The GSF Grant Scheme has led to more active corporate green bond issuance, with 12 issuers/borrowers participating in the green debt market in 2021. Out of the said 12 issuers/borrowers, there were 9 new issuers including Hongkong Land and China Development Bank (Hong Kong Branch), which issued their inaugural green bonds.

4. Green Bond Principles (“GBPs”)
The ICMA has set out four core components under GBPs, which are internationally recognized voluntary process guidelines that encourage transparency and promote integrity. The GBPs are part of the Hong Kong Green Finance Association’s guide to Green Bonds and are widely used by issuers including the HKSAR Government. Four core components, as shall be discussed below, are at the centre of the GBP.

4.1. Use of Proceeds
This principle concerns the utilization of bond proceeds towards eligible green projects. The designated green projects should provide clear environmental benefits which are feasible, quantifiable and/or assessable which should be disclosed to potential investors. Some green projects categories are expressly recognised as carrying significant environmental objectives:

4.2. Process for Project Evaluation and Selection
Issuers have to communicate clearly to investors about the environmental sustainability objective of the green projects, the process of determining the project category and the identification and management of the associated social and environmental risks. The ICMA suggests that an external review is conducted to supplement the issuer’s project evaluation and selection processes.

4.3. Management of Proceeds
The credit arrangement of the green bond’s net proceeds should be conducted through a sub-account and later moved to a sub-portfolio that attests to the issuer’s lending and investment operations of the project. Issuers are recommended to inform investors about the intended types of temporary placement for the balance of unallocated net proceeds.

4.4. Reporting
Issuers should report up-to-date information on the use of proceeds annually until full allocation. Transparency is a core value in communicating to investors about the expected and/or achieved impacts of projects.

5. External Reviews
To qualify as a green bond, issuers are recommended to appoint external reviewers to ensure the green bond framework is aligned with the GBPs. This mitigates the risk of “green defaults” where funds are not actually applied to green projects, or fail to yield the expected environmental benefits. It should also be noted that a prerequisite for applying for the GSF Grant Scheme is the perusal of pre-issuance external review services by reviewers on the HKMA’s Recognised External Reviewer list.
Some standard external review methods include obtaining a secondary party’s opinion, expertise verification and certification on the alignment to the GBPs or other international standards.

6. Sustainability-linked Bonds
Sustainability-linked bonds (“SLBs”) are bond instruments where the proceeds from issuance are not restricted to specific green projects. Instead, the SLBs are dependent on the achievement of pre-defined sustainability performance targets as measured by the performance of specific key performance indicators (“KPIs”).

Difference between green bonds and sustainability-linked bonds

As it can be seen, SLBs provide lowered thresholds for issuers to engage in the sustainable finance market. Rather than investing in specific green business projects through the funds, potential issuers with overall sustainability or ESG strategies who are unable to afford the high capital cost of green projects could consider issuing SLBs, without requiring them to purchase a significant amount of green assets.

7. Analysis and takeaways
In the past decade, green bonds have continued to dominate among green and sustainable finance markets. Different regulatory updates and subsidies have been enacted in order to promote Hong Kong’s status as a leading Green Bond market. Issuers are advised to refer to GBP standards and guidance on subsidies to ensure their fund-raising process occurs as efficiently as possible. With greater flexibility on offer, SLBs are also an attractive choice for issuers to attain a general performance target.

Please contact our Partner Mr. Rodney Teohfor any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.

¹ Hong Kong Monetary Authority. (2020, November). The Green Bond Market in Hong Kong: Developing a Robust Ecosystem for Sustainable Growth. Retrieved from Hong Kong Academy of Finance: https://www.aof.org.hk/docs/default-source/hkimr/applied-research-report/gbrep.pdf
² Capital Markets Association. (2022, June). Green Bond Principles: Voluntary Process Guidelines for Issuing Green Bonds. Retrieved from ICMA: https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles_June-2022-280622.pdf
³ Hong Kong Green and Sustainable Debt Market Briefing. (2022, July). Climate Bonds Initiative. Retrieved from Climate Bonds Initiative: https://www.climatebonds.net/files/reports/cbi_hk_briefing_2021.pdf

(中文) 2022年9月23日，本所合伙人、银行及金融部和诉讼及争议解决部主管徐凯怡律师，获邀为华南 (香港) 国际仲裁院 (SCIAHK) 与深圳国际仲裁院 (SCIA) 合办之「大湾区仲裁青年计划 (GBArb Youth) 香港普通法培训课程」担任讲师。本次内部培训旨在增进大湾区国际争议解决机构之仲裁员对香港普通法的了解，和加强大湾区国际争议解决专业人士之间的交流。

徐律师以「银行及金融机构之争议解决 – 国际仲裁」为题，就银行与金融机构争端解决方式的最新趋势、仲裁的优势、备受银行和金融机构欢迎之国际仲裁机构、以及金融界对于选择仲裁之疑虑提供了全面的分析。徐律师亦向学员讲解了目前银行金融领域面临的主要风险和争议，包括网络犯罪、不良资产处置、跨境执行和保全等。最后，徐律师通过香港案例分享，进一步加强学员对香港仲裁程序和财产保全申请之相关安排和条例的认识。

本次课程吸引了超过70名学员在线参与培训，并积极参与了现场提问之互动环节。

如阁下有任何查询或想了解更多详情，请联络本所合伙人徐凯怡律师。

Having recently advised on US IPOs, including Magic Empire Global Ltd. (NASDAQ: MEGL) Intelligent Living Application Group Inc. (NASDAQ: ILAG) and Zhong Yang Financial Group Limited (NASDAQ: TOP). Our Partner, Gordon Tsang was interviewed by Bloomberg regarding the article titled “Nasdaq Scrutinizes Share Allocations After Mysterious IPO Gains”.

Nasdaq wanted to know more on the sharing allocations for IPOs made by small-cap firms which have caused huge price swings in the market. In the interview, Gordon shared with Bloomberg that “Nasdaq aims to enhance transparency on placements and connected transactions for IPOs, much like what Hong Kong regulators asked for a few years ago.”

For more information, please contact our Partner Mr. Gordon Tsang, or click here to view the complete interview.

On 9 September 2022, our Partners, Ms. Heidi Chui and Mr. Rodney Teoh, together with Marketing and Communications Executive Ms. Julia Yeung, attended the 21st Asian Legal Business (ALB) Hong Kong Law Awards Ceremony and Dinner. Due to the high number of guests, the gala simultaneously took place at the Island Shangri-La and the Ritz-Carlton Hotel, Hong Kong.

From the left: Marketing and Communications Executive Ms. Julia Yeung, Partners, Ms. Heidi Chui and Mr. Rodney Teoh

Our firm was named finalists in the following award categories: “Civil Litigation Law Firm of the Year”, “Dispute Resolution Boutique Law Firm of the Year”, “Matrimonial and Family Law Firm of the Year”, and “Transactional Boutique Law Firm of the Year”.

In addition, Ms. Chui was named a Top 5 finalist in “Dispute Resolution Lawyer of the Year” and “Woman Lawyer of the Year (Law Firm)”.

We would like to take this opportunity to thank ALB for the nominations and for organising such an incredible event.

About ALB Hong Kong Law Awards

The ALB Hong Kong Law Awards is the most prominent and longest-running award run by ALB in Asia. The awards aim to pay tribute to the outstanding performance of private practitioners and in-house teams in the region.

Please contact our Partners Ms. Heidi Chui or Mr. Rodney Teoh, for further information about this event.

We are delighted to announce that our Senior Associate Mr. Michael Lau has successfully passed the Guangdong-Hong Kong-Macao Greater Bay Area Legal Professional Examination (GBA Exam), becoming the sixth lawyer of our firm passing the examination. After obtaining the relevant practice certificate, Michael is eligible to practise PRC law in civil and commercial legal matters (including litigation and non-litigation matters) in the nine cities of the GBA.

The GBA Exam is a liberalization measure under the Agreement on Trade in Services to the Mainland and Hong Kong Closer Economic Partnership Arrangement. Hong Kong legal practitioners with five or more years of post-qualification experience can provide legal services in the nine Mainland municipalities in the GBA on specified civil and commercial legal matters to which the Mainland laws apply. They enjoy the same privileges and be under the same obligations as Mainland lawyers. They can also be retained by Mainland law firms and partnership associations of Mainland law firms and Hong Kong or Macao law firms, and can also become partners of partnership law firms in the nine cities of the GBA.

Five other lawyers of our firm have successfully passed the first GBA Exam, including Partners Mr. Willy Cheng, Ms. Heidi Chui, Mr. Rodney Teoh, Mr. Gordon Tsang and Senior Associate Mr. Terence Lau.

Through our association with one of the largest full-service law firms in Mainland China, AllBright Law Offices, together with our team at SW, we will continue to remain at the forefront of the GBA and provide our clients with premium, efficient, and innovative legal services.

For more information, please contact our Senior Associate Mr. Michael Lau.