The Hong Kong Monetary Authority (the “HKMA”) has extended its Green and Sustainable Finance Grant Scheme (the “GSF Grant Scheme”) for an additional three years, through 2027. Initially launched in May 2021, the GSF Grant Scheme supports the issuance of eligible green and sustainable bonds and loans in Hong Kong to foster the development of sustainable finance. The details of the extended GSF Grant Scheme were announced on 3 May 2024, with the updated guidelines for grant applications[1] (the “2024 Updated Guidelines”) taking effect on 10 May 2024, the date of the extension.
As with the original GSF Grant Scheme, the grants under the extended GSF Grant Scheme consist of two tracks, covering:
- General Bond Issuance Costs: This track covers 50% of eligible expenses with the caps maintained at HK$2.5 million or HK$1.25 million (depending on whether the bond, issuer, or guarantor has a credit rating).
- External Review Costs: This track covers the full cost of external review fees with an overall cap maintained at HK$800,000.
The eligibility requirements are similar to those under the original GSF Grant Scheme, requiring, among others, the financial instruments to be issued in Hong Kong, the issuance size to be at least HK$1.5 billion for general bond issuance cost grants or HK$100 million for external review cost grants, and pre-issuance review by a recognised external reviewer.
The key changes in the 2024 Updated Guidelines include:
- Expansion of the Grant Scope: Transition bonds and loans have been added as eligible financial instruments.
- Specific Caps for External Review Costs: Sub-caps for pre-issuance and post-issuance external review cost have been set on top of the original total cap.
Applications for grants for bonds or loans issued from 10 May 2024[2] must follow the 2024 Updated Guidelines. The application procedure remains the same as in the original GSF Grant Scheme, where applications for general bond issuance cost grants are to be submitted to the HKMA by the lead arrangers or lead lenders while applications for external review cost grants may be submitted by issuers or borrowers directly. Recognised arranger and recognised external reviewer statuses certified by the HKMA before 10 May 2024 will remain valid.
Overview of the Hong Kong GSF Grant Scheme
For easy reference, the below is an overview of the updated GSF Grant Scheme. For full details on the GSF Grant Scheme, please refer to the 2024 Updated Guidelines.
1. Eligible Instrument Types
General Bond Issuance Cost Grants: Green, social, sustainability, sustainability-linked and transition bonds.
External Review Cost Grants: Green, social, sustainability, sustainability-linked and transition bonds and loans.
2. Eligible Bond Issuers[3] and Loan Borrowers[4]
General Bond Issuance Cost Grants: Eligible for first-time issuers (that is, those who have not issued any green, social, sustainability, sustainability-linked, or transition bonds[5] in Hong Kong within the five years preceding the eligible issuance), excluding issuers acting also as an arranger for the eligible bond issuance.
External Review Cost Grants: Available to both first-time and repeated issuers and borrowers (each entity can apply for subsidy for two eligible loans at most[6]).
3. Criteria for Eligible Issuances
For all applications:
- Issued in Hong Kong: For bonds, at least half of the lead arrangers must have recognised arranger status by HKMA, and for loans, at least half of the loan amount must be provided by Hong Kong-based lenders.
- Issuance Size: At least HK$1.5 billion for general bond issuance cost grants and HK$100 million for external review cost grants.
Applicable to bonds only:
- Must be (i) lodged with and cleared by the Central Moneymarkets Unit (“CMU”) or (ii) listed on The Stock Exchange of Hong Kong Limited (the “HKEX”).
- Issued, at issuance, to at least 10 persons, or fewer than 10 persons none of whom is an associate of the issuer.
Applicable to green, social responsibility, and sustainability bonds and loans only:
- Pre-issuance external review related to the issuance demonstrating alignment with internationally-recognised principles, standards or guidance, as provided by a recognised external reviewer.
Applicable to transition bonds and loans:
- A developed and appropriately disclosed transition plan (or equivalent disclosures on climate transition strategy) at the entity-level[7].
- Pre-issuance external review demonstrating the adoption of internationally-recognised transition finance principles, standards or guidance (including the transition plan related elements under such principles, standards or guidance), as provided by a recognised external reviewer; and
- For use-of-proceeds instruments, pre-issuance external review demonstrating alignment with an applicable internationally-recognised taxonomy, as provided by a recognised external reviewer.
4. Grant Amounts
General Bond Issuance Cost Grants: 50% of eligible expenses (ie. fees to Hong Kong-based arrangers, Hong Kong-based legal advisors, Hong Kong-based auditors and accountants, Hong Kong-based rating agencies, HKEX listing fees and CMU lodging and clearing fees)[8] up to the following caps:
- HK$2.5 million where the bond, its issuer or its guarantor(s) possess a credit rating[9]; or
- HK$1.25 million where no credit rating is available.
External Review Cost Grants: Transaction-related fees paid to recognised external reviewers for up to a total cap of HK$800,000, further divided into specific caps as follows:
- Pre-issuance external review (such as fees paid for certification, second-party opinion, verification, ESG scoring/rating, assurance): up to HK$250,000; and
- Post-issuance external review: HK$200,000 per year for the first three years from the date of the eligible issuance or up until the maturity of the issuance, whichever is shorter.
Further Information
For more details on the GSF Grant Scheme or information on other schemes such as the Singapore Bond Grant Scheme and the Sustainable Bonds Grant Scheme by the Monetary Authority of Singapore in support of development in the debt capital markets, please contact the authors listed below.
Reference
[1] https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2024/20240503e7a1.pdf
[2] The pricing date of a bond issuance is deemed to be the issuance date under the GSF Grant Scheme.
[3] The term “issuer” denotes the entity issuing a bond (the “issuing entity”) and the issuing entity’s associate(s), excluding government issuers. The term “associate” refers to (i) a person/corporation over which the issuing entity has control; (ii) a person/corporation which has control over the issuing entity; or (iii) a person/corporation that is under the control of the same person/corporation as the issuing entity.
[4] Excluding government borrowers.
[5] Issuers that issue transition bonds in Hong Kong for the first time, including those that have previously issued green, social, sustainability or sustainability-linked bonds in Hong Kong, are deemed to be first-time issuers for the purpose of the General Bond Issuance Cost Grants.
[6] Including all eligible loans (issued before, on or after 10 May 2024) where the entity acts as borrower or guarantor.
[7] For the purpose of the GSF Grant Scheme, a transition plan (or equivalent disclosures on climate transition strategy) developed at the group-level shall be generally considered acceptable to the extent that it encompasses the relevant climate transition disclosures for the issuing entity of the concerned issuance.
[8] Excluding expenses covered by other grant scheme(s) in Hong Kong or outside Hong Kong.
[9] By one or more of the following credit rating agencies: Fitch Ratings, Moody’s Investors Service, Rating and Investment Information, Inc, and S&P Global Ratings.
*Any reference to “Hong Kong” or “Hong Kong SAR” shall be construed as a reference to “Hong Kong Special Administrative Region of the People’s Republic of China”.
