Proposal: South Korea USD new bond issuance

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On 8 April, South Korea issued a request for proposal for an off-shore bond: AFII proposes a sustainability-linked structure based on the issuer’s decarbonisation targets.

Our structure puts in a step-up in case of missing National Determined Contribution targets of a 40% reduction between 2018 to 2030, and a step-down for a further 5% decarbonisation. Assuming a fair chance of meeting the targets, the option premium is priced to 5bps running, and would mean a markedly lower cost-of-capital for the issuer if successful in achieving decarbonisation. At the same time, the structure should provide an attractive optionality to investors with requirements to decarbonise their portfolios.