OREANDA-NEWS. July 18, 2013. “Some of the enterprises engaging in energy performance contracting (EPC) like us are asset-light companies without workshop and land, so it's hard to get loans from banks.” A few days ago, Liu Zheng, the person-in-charge of Sinowyde Energy Technologies told the reporter at the company's office, “because we have core technologies and have received the investment of several VCs, we can now achieve rolling development depending on our own capital. However, it is very hard for many other enterprises to continue their development.”

Based on incomplete statistics, most of the enterprises engaging in the industry of energy conservation and environmental protection now are SMEs, and they are obviously asset-light and lack effective tangible guarantees. For banks, the operation quality and energy-saving benefits of an energy-saving project can hardly be quantified and they cannot judge the risks and incomes of such projects, so they are very prudent in granting credit support to such enterprises. Nonetheless, this situation may be changed in the near future.

Upgrading of green credit
Some inside experts indicate that it will be a dominating development trend of banks to increase credit extension in the field of green production and consumption. In order to encourage banks to develop the green credit business, the China Banking Regulatory Commission (CBRC) issued the Guiding Opinions on the Credit Extension for Energy Conservation and Emission Reduction, the Green Credit Guidelines , and the Opinions on Green Credit in recent years. Various banking institutions also take green finance as a key business to develop in succession. As learnt by the reporter, the balance of green credit of many joint-stock commercial banks, including Industrial Bank (IB), Shanghai Pudong Development Bank (SPDB), China Merchants Bank (CMB) and Bank of Beijing (BOB) (601169, stock bar), went beyond RMB 10 billion.

As is pointed out in the report of “2013 China Banking Industry Top Ten Trends and Outlook” released by Deloitte a few days ago, “the green concept will go deeper into the banking industry and become a focus for the Chinese banking industry to perform corporate social responsibilities. In 2013, the concept of green credit will further exert active influence in the banking industry.”

As the bank developing the business of green credit at the earliest time in China, IB has accumulatively provided financing of RMB 243.2 billion in the area of energy conservation and emission reduction across the country, with its financing balance reaching RMB 126.9 billion, by the end of this March. Specifically, the bank has accumulatively provided green financing of RMB 9.4 billion in Hebei, with a balance of RMB 4.562 billion. It is reported that IB signed a strategic cooperation agreement with the Environmental Protection Department of Hebei to build a banking-government cooperation platform for environmental protection jointly and promised to offer green financing support of RMB 50 billion within the coming three years to lend support for the development of environmental protection cause in the province. As indicated by IB, it was the first stop of the bank's “Beautiful China Tour”. In the following time, the bank will carry out similar cooperation with many other local government departments to support the construction of energy conservation and environmental protection in various areas.

In addition, IB also released the program of “Green Finance Tactics (2013)”, and as reported, this is a multi-layered service program covering products, models and solutions. “Targeting at the diversified financial needs of corporate financial customers in the field of energy conservation and environmental protection, the multi-layered and integrated product and service system formed on the basis of the two product families of our green finance, ‘8+1' financing services and emission rights based finance, which covers financial products, service models and solutions, is a brand-new upgrading of products and services.” Liang Pingrui, General Manager of the Sustainable Finance Department of IB told the reporter.

It is reported that the special service program of “Green Finance Tactics (2013)”, at the layer of product, besides the ten general products of conventional banking, also includes seven characteristic products such as financing for energy performance contracting (EPC) by using the future usufruct as the pledge, contract environmental service based financing, carbon assets pledge based financing, emission right pledge-based financing, and energy conservation and emission reduction (CHUEE) financing; at the layer of model, it provides five service models including financing for the production increase of energy-conserving and emission-reducing equipment manufacturer, financing for utilities service supplier, financing for franchised projects, financing for energy management company (EMC) and financing for financing lease company; further, it also provides seven integrated solutions covering carbon trading, emission right trading, conserved energy trading, utilization and protection of water resources, integrated services for industrial chain, industrial consolidation, and financing for special projects.

Differentiated green finance
Energy conservation and environmental protection is a cross-industry area involving a great variety of segments characterized by unique features. For this reason, IB established a specialized team for green finance to develop individualized reconstruction schemes based on the features of different demands of each segment in the area.

As learnt by the reporter, IB established an energy efficiency financing team in 2005, set up the Sustainable Finance Center, the first institution specialized in green finance at home, in 2009, and upgraded the Center into the Sustainable Finance Department, a first-tier department, in 2012. By now, the department has established five specialized teams including project financing, carbon finance, market research, technical services, and Equator Principles review, and built an assets operation platform integrating the six functions: product design, technical support, assets management, marketing operation, trading service, and business cooperation. At the level of branch, the bank has set up departments in all branches for controlling environmental and social risks in a planned manner and driving forward green finance businesses, and appointed product managers in charge of green finance in line with the requirements of the Head Office. In this way, IB integrated the head office and branches into a whole, realizing specialized operation of green finance.

In this year, IB is actively pushing the setup of regional institutions specialized in green finance at the layer of branch, such as green finance business headquarters or departments, “to further improve the bank's overall differentiated competitive edges in green finance and enhance the regional professional brands and specialized operation of green finance,” said Liang Pingrui.

New innovation in risk control and management
Some insiders believe that it requires innovation in risk control and management to make achievements in green credit and play a role in helping companies involved in energy conservation and environmental protection. In 2012, IB standardized credit products applicable to energy-saving service projects, releasing the bank's EPC based financing product. By pledging the future usufruct of energy-saving service suppliers under EPC as the main guarantee and using the energy-saving benefits of projects as the main source of repayment, the product lowers the requirements for traditional guarantees such as land and workshop so as to meet the pressing needs of enterprises.

As learnt by the reporter, Shenzhen Prosunpro Solar Energy Co., Ltd., which is established in 1993, is one of the enterprises benefiting from the innovative product. Prosunpro Solar Energy boasts rich engineering experience in the design, construction and operation management of solar energy hot water projects, and has successful experience in many large energy-conserving transformation projects of solar energy hot water system. In recent years, the company was in need of medium- and long-term financing demands as it undertook many engineering transformation projects, but in developing projects in a rolling manner for a long period, it could hardly provide any effective mortgage and guarantee any more. As a result, it was extremely difficult for the company to get a solution by resorting to the conventional commercial loans.

Considering the financing needs of Prosunpro Solar Energy, IB designed a special service solution of EPC financing for the company, after carrying out quantitative evaluation over the energy-saving benefits, project risks and post-loan cash flow based on the technological maturity and the attainability of energy-saving benefits of its energy-saving projects. Liang Pingrui said: “We focus more on the previous successful cases of customers, and the future cash flow and supervision of their EPC projects, but less on conventional guarantees such as land and workshop.”

It is reported that, in 2012, Prosunpro Solar Energy received a project loan of RMB 14 million from IB, with a term of five years, which accounted for 70% of its two projects' total investment. In 2013, the company received the project loan of RMB 9 million from IB again. According to relevant officer of Prosunpro Solar Energy, for the two loans, the term of repayment was determined and the grace period was set based on the actual cash flow, and the repayment would be made in installment after the project was put into operation. This method effectively alleviates the financial pressure of the company.