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China's first "carbon neutrality" bonds draw tepid demand

SHANGHAI, Feb 9 (Reuters) - China’s first batch of “carbon neutrality” bonds received a lukewarm welcome from investors who demand higher yields, underscoring the country’s challenge to fund President Xi Jinping’s pledge to go carbon neutral by 2060.

Five Chinese power companies and one airport operator began on Sunday to raise a combined 6.4 billion yuan ($992.36 million) to finance clean energy and low-carbon projects. Four of the issuers, including China Three Gorges Corp and State Power Investment Corp extended their subscription period citing market conditions.

“The issuers are not happy with the price investors are willing to offer,” said a bond investor at insurer PICC, who declined to be named.

Gu Weiyong, chief investment officer at asset manager Ucom Investment Co, said investors were demanding higher yields amid signs of tighter liquidity, and the imminent week-long public holiday also contributed to weak demand. The Lunar New Year holiday starts on Thursday.

In addition, he added, many green bonds in China suffer from low liquidity and are not a guarantee against defaults, making them less attractive than sovereign bonds.

For example, Huaneng Power International set a coupon range of 3-4% for its three-year green bonds, compared with 2.9% for Chinese treasury bonds with the same tenor.

President Xi last year called for a “green revolution”, vowing that China will reach peak carbon emissions before 2030 and achieve net zero carbon dioxide emissions by 2060.

To meet the carbon neutrality pledge, China needs to mobilize its financial system to channel over 100 trillion yuan, or even several hundred trillion yuan into green investments, Chinese central bank advisor Ma Jun wrote in a January report.

Currently, China’s green finance standards, and disclosure rules don’t fully match with the carbon neutrality goal, and there’s inadequate incentive to support green investing, said Ma, who is also chairman of the China Green Finance Committee.

The deadline for investor subscriptions had originally been set at 5 p.m. on Monday, but State Power Investment Corp and Huaneng Power extended the subscription period for a few hours while Yalong River Hydropower Development Co and Three Gorges reset the deadline for 11 a.m. on Tuesday. ($1 = 6.4493 Chinese yuan renminbi) (Reporting by Samuel Shen and David Stanway; Editing by Susan Fenton)

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