SEC encourages social bonds to support recovery from COVID-19 pandemic

The Securities and Exchange Commission (SEC) has put forward the issuance of social bonds to support efforts to contain the COVID-19 pandemic, manage the resulting socioeconomic impacts and build resilience to future shocks.

Social bonds are financing instruments whose proceeds are exclusively used to finance or refinance new or existing projects that directly aim to address or mitigate a specific social issue and/or seek to achieve positive social outcomes.

The Commission cited the potential of the social bond market as a funding source for COVID-19-focused projects, as it approved the country’s first issuance in accordance with the ASEAN Social Bond Standards (SBS).

On June 17, the SEC approved the application of Bank of the Philippine Islands (BPI) to use the ASEAN Social Bond label for its COVID Action Response (CARE) Bonds.

BPI looks to raise at least P3 billion from the ongoing offering to finance and refinance eligible micro, small and medium enterprises (MSMEs).

The CARE Bonds, which represents the third tranche of the bank’s P100 billion bond program, will have a tenor of 1.75 years and an interest rate of 3.05% per annum.

“COVID-19 has given rise to serious socioeconomic issues globally, pushing enterprises to the brink of failure and leaving millions of people jobless,” SEC Chairperson Emilio B. Aquino said.

“The social bond market could boost our response to and recovery from the pandemic by unlocking the much-needed capital for the promotion of public health, reopening of businesses and preservation of jobs, among others.”

ASEAN Social Bonds

Social bonds have gained traction among issuers and investors across the world.

In 2018, the ASEAN Capital Markets Forum introduced the ASEAN SBS to enhance transparency, consistency and uniformity of social bonds issued in the region and thereby contribute to the development of a new asset class, reduce due diligence costs and help investors make informed investment decisions.

The Philippines adopted the ASEAN SBS in April 2019 through the issuance of the Guidelines on the Issuance of Social Bonds Under the ASEAN Social Bond Standards in the Philippines under SEC Memorandum Circular No. 9, Series of 2019.

The ASEAN SBS reflect the four core components of the Social Bond Principles launched by the International Capital Market Association (ICMA) as voluntary process guidelines in 2017, namely use of proceeds, process for project evaluation and selection, management of proceeds, and reporting.

Issuers may use the ASEAN Social Bond label in raising funds for projects benefiting the poor, excluded or marginalized populations and communities, vulnerable groups, including those affected by natural disasters, the unemployed, people with disabilities, migrants and displaced persons, the undereducated and the underserved.

Eligible projects include those providing and/or promoting affordable basic infrastructure, access to essential services, affordable housing, employment generation, food security, and socioeconomic advancement and empowerment.

BPI will be the second to issue ASEAN Social Bonds in the region. In 2019, Bank of Ayudhya of Thailand issued the first ASEAN Social Bonds, which also represent the first ever private sector “gender” bond issuance in Asia and the Pacific, to raise $220 million for lending to women-led SMEs.

The CARE Bonds being offered by BPI, however, will be the first ASEAN Social Bonds whose proceeds will be used to mitigate the socioeconomic impact of the COVID-19 pandemic.

COVID-19 social bonds

At the height of the COVID-19 pandemic, the ICMA released guidance on the usability of social bonds in financing projects aimed at addressing or mitigating social issues wholly or partially emanating from the coronavirus outbreak.

ICMA confirmed social bonds may finance COVID-19-focused social projects such as those seeking to increase capacity and efficiency in provisioning healthcare services and equipment, and those supporting medical research.

Issuers may also issue social bonds to provide SME loans that support employment generation in affected small businesses, and advance projects specifically designed to prevent or alleviate unemployment stemming from the pandemic.

While they seek to achieve positive social outcomes for target populations, social bonds may likewise finance projects that address the needs of the general population, given the far-reaching impact of the COVID-19 pandemic and any resulting socioeconomic crisis, according to ICMA.

The International Finance Corporation, a member of the World Bank Group, likewise provided illustrative case studies on how issuers from various industries may use social bonds to raise financing toward addressing social issues brought about by the COVID-19 pandemic.

In the pharmaceutical industry, for instance, social bonds may finance research and development of COVID-19 tests, vaccines and/or other medications intended to alleviate symptoms of the coronavirus.

Financial institutions, meanwhile, may use proceeds from social bond issuances to provide loans to small businesses negatively impacted by the economic slowdown prompted by the COVID-19 pandemic.

Manufacturing companies may likewise issue social bonds to finance the manufacturing or modification of existing machines to produce health safety equipment and hygiene supplies.

“We hope more companies will explore the social bond market to pursue socially relevant and impactful projects, especially in this time of unprecedented global health and economic crisis,” Mr. Aquino said.

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