Hong Kong's first green loan for logistics sector, worth US$1.13 billion, will finance cold storage facility in Kwai Chung

ESR Group, a real estate services and investment company, and property firm Chinachem Group have secured Hong Kong's first green loan for a logistics facility, worth HK$8.8 billion (US$1.13 billion).

The five-year loan will finance the construction of the Kwai Chung Cold Storage Logistics Centre. The seven-storey facility, to be constructed on a 55,245 square-metre site, will be the biggest cold storage unit to be built in the city in two decades.

"Our cold storage logistics centre in Kwai Chung will provide a range of green features for companies looking for sustainable solutions in all aspects of their supply chain," ESR Group co-founders and co-CEOs Stuart Gibson and Jeffrey Shen said in a joint statement on Friday.

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The project is aligned with the Hong Kong government's focus on the development of sustainable, modern logistics infrastructure as part of efforts to enhance the city's status as an international trade centre, they added.

In an action plan for logistics development to be published later this year, the government will formulate strategies to realise smart development, modernisation, sustainability and internationalisation in the sector, Chief Executive John Lee Ka-chiu said during his second policy address on October 25.

Groundbreaking ceremony to initiate the development of the new cold storage and logistics facility in Kwai Chung. Photo: Chinachem Group alt=Groundbreaking ceremony to initiate the development of the new cold storage and logistics facility in Kwai Chung. Photo: Chinachem Group >

The planned cold storage centre in Kwai Chung will aim to achieve green building certification such as BEAM Plus New Building Platinum and LEED Gold, with 30 per cent of the site area designated for greenery. BEAM stands for Building Environmental Assessment Method, and LEED stands for Leadership in Energy and Environmental Design.

The facility will have a water recycling system for landscaped areas, and electric vehicle charging points in its car parks, the companies said.

To achieve the BEAM Plus platinum rating, a building must score at least 75 points out of 100, according to the Hong Kong Green Building Council, which operates the scheme.

Points are awarded for factors such as low carbon energy use, human health and well-being, green construction practices and smart design and technologies.

Other considerations include sustainable site development, use of green materials, waste reduction, saving water and recycling.

To achieve LEED Gold, 60 to 79 points must be earned through credits relating to climate change, human health, water resources, biodiversity, green economy, impact on the community and natural resources, according to the US Green Building Council which runs the system.

Sumitomo Mitsui Banking Corporation, United Overseas Bank and Oversea-Chinese Banking Corporation were the lead arrangers, bookrunners and underwriters of the loan.

Financial terms such as the interest rate or any penalty and reward mechanism for the completion and sustainability of the green building features were not disclosed.

The logistics project will advance the shared environment, and the social and governance priorities of both companies, while aligning with Chinachem's commitment to "the balance of people, prosperity, and planet", said the company's CEO, Donald Choi.

In August 2022, Hong Kong-listed ESR, the largest logistics real estate manager with a focus on Asia-Pacific, and unlisted Chinachem Group announced that they had formed a joint venture to develop the facility in Kwai Chung. It was Chinachem's first foray into the logistic sector.

They cited tight demand in the sector to support their business case. Logistics space vacancy stood at just 1.4 per cent in the second quarter of last year, with no new supply in the pipeline and a million square feet of cold storage space set to be converted to data centres by August 2026.

Expected to be completed in 2027, the new facility will have good road transport links to the city's business districts, airport and border with mainland China, according to the developers.

ESR Group won the tender for the site, at the junction of Mei Ching Road and Container Port Road South, in July last year for HK$5.26 billion (US$670 million). The terms allows for a maximum gross floor area of 138,000 square metres to be developed.

Only two green loans - including the one announced by ESR and Chinachem - amounting to US$1.33 billion were recorded in Hong Kong's real estate sector so far this year, down 71 per cent from the same period in 2022, according to Refinitiv data. For green loans in all industries in the city, the volume fell 57 per cent to US$4.4 billion across 15 transactions.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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