Hong Kong, China: Project Ocean

OBJECTIVE

To mobilize private capital into emerging market infrastructure through supporting the continued development of the infrastructure asset backed securities market in Asia.

DESCRIPTION

The Project will mobilize private capital into emerging market infrastructure through supporting the continued development of the infrastructure asset backed securities market in Asia. This will be achieved through an up to USD300 million investment program into issuances of infrastructure asset backed securities sponsored by the Hong Kong Mortgage Corporation (HKMC).

Incorporated in 1997, HKMC is wholly owned by the Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR Government). The Infrastructure Financing and Securitization (IFS) Division of HKMC was formed in 2019 to execute the purchase, warehousing, and securitization of infrastructure loans. As part of the Project, IFS will develop a climate strategy for its securitization business that is in alignment with the goals of the Paris Agreement and decarbonize its portfolio in future infrastructure asset backed securities issuances.

The Project will contribute to the track record of primary issuances and provide valuable market benchmarks, which are both key conditions for developing the infrastructure securitization market in Asia. This will result in the creation of a robust ecosystem for development of the Asian infrastructure asset class, mobilize inbound investment by institutional investors, and set new precedents for capital markets development in the region.

Update on AIIB’s holdings: as of 1 November 2024, AIIB only holds Class A1 - SU Notes (sustainability tranche).

ENVIRONMENTAL AND SOCIAL INFORMATION

The Project applies the ESG Approach to Capital Market Operations provided under Paragraphs 12-14 of the Bank’s Environmental and Social Policy (2022 ESP). The relevant ESG Framework is IFS’ Environmental and Social Guidelines (E&S Guidelines) established and aligned with Equator Principles, which is assessed by the Project Team to be consistent with the spirit and vision of AIIB’s ESF.

HKMC IFS has developed and maintained (1) E&S Guidelines which serves as the basis for a robust E&S due diligence for every loan acquisition and (2) Social, Green and Sustainability Financing Framework which provides the basis for issuance of green, social or sustainability notes. The Project invests into issuances of infrastructure asset backed securities, which include sustainability tranches. The proceeds from the sustainability tranches will be used to finance and/or refinance the purchase of loans for green and social projects.

The Project Team validates HKMC IFS adhering to the requirements of its E&S Guidelines and that it remains suitable to resolve E&S concerns arising under the proposed operation.

• The IFS E&S Guidelines comprises review process, screening and categorization process, due diligence and investment approval, covenants in documentation and closing, post-closing monitoring and sector guidelines for hydropower, which may be subsequently updated to align with the evolving market standards and regulatory requirements. Under the Guidelines, HKMC assesses each loan acquisition for E&S risks and impacts. The guidelines include criteria to evaluate the E&S performance of each underlying loan asset and its sponsors in the portfolio (including E&S-related reputational risks) as part of the initial red flag screening. Loans are screened against HKMC E&S Exclusion List and categorized accordingly.
• The Social, Green and Sustainability Financing Framework, which would apply to the sustainability tranche of this operation, has been reviewed and a Second Party Opinion (SPO) has been provided for alignment with key International Capital Market Association (ICMA) guidelines including Green Bond Principles (GBP 2021), Social Bond Principles (2021) and Sustainable Bond Guidelines (2021). The initial aggregate par amount of Eligible Loan exceeds the proposed principal amount of the sustainability tranche and investment into these sustainable assets will contribute towards the advancement of the UN Sustainable Development Goals (SDGs).

Thermal coal mining, coal-fired power and heating plants or projects that are functionally related to coal are excluded. Regarding solar subprojects, HKMC will review potential supply chain issue related labor and working conditions and require appropriate mitigating measures and seek AIIB's advice if required.

HKMC IFS has established its External Communications Mechanism (ECM) as the project-level Grievance Redress Mechanism (GRM) to provide a forum for stakeholders, including project-affected people, to raise E&S concerns. The ECM will receive and facilitate resolution of the concerns and complaints of people who believe that they have been adversely affected by the loan’s E&S impacts. The IFS Team coordinates with stakeholders in managing its grievance mechanism. Under its E&S Guidelines, HKMC IFS will require all asset loans to establish and maintain grievance mechanisms, scaled to the risks and impacts of the project.

During project administration, HKMC IFS will continue to conduct post-reviews of the selection and implementation of the asset loans as part of its regular supervision, comprising engagement with the involved financial institutions and/ or borrowers, potential site visits and detailed review of the E&S documentation. AIIB will receive the sustainable tranche impact report, including the total amount of proceeds allocated to eligible loans, number of eligible loans, impact indicators and other items.