17 November 2017
[UPDATED, CORRECTING DETAILS OF IBERDROLA ISSUE]
The green and social bond market saw a frenzy of activity this week, after a spate of issues propelled the green bond market through the $100 billion barrier for the first time.
The bumper week for the market saw numerous new and repeat green bond issuers come to the market, while the social bond market also saw a dramatic uptick in activity and could prove seminal for this market.
Companies that have issued or that plan to issue include big names such as Orsted, HSBC, Westpac, and Deutsche Hyp.
The tumult of activity coincides with the UN climate talks in Bonn, where social issues have been prominent on the agenda.
The green bond market has seen $100.7 billion of issues so far this year, with the latest spate propelling the green bond market through the landmark $100 billion barrier for the first time, according to Environmental Finance's Green Bond Database.
"It has been an incredible week in terms of new issuances in the green bond market," said Bram Bos, senior portfolio manager for sustainable credits and green bonds at NNIP. "We saw a combination of new and repeat issuers coming to the market.
"I think the acceleration in green bond market growth is impressive and underlines that green bonds have become a mainstream fixed income category."
Meanwhile, the week will prove to be seminal for the social bond market, Simon Bond of Columbia Threadneedle Investments believes.
A $1 billion Sustainable Development Goals Bond issued by HSBC issue is a sign of increasing innovation in the market, as green bonds "move beyond green bonds", he told Environmental Finance's inaugural Insurance & Climate Risk conference in London.
"This week is a pretty seminal week in the bond market - we have had an awful lot of innovative issuance," said Bond. HSBC's "SDG bond" issue followed Tuesday's issue of three International Capital Markets Association (ICMA)-approved social bonds, he said.
"Green bonds are moving on, they're moving beyond green bonds," he added. "We're seeing pickup in these sorts of innovative use-of-proceeds-type bonds… [that] look at environmental outcomes, but also health, social and education outcomes, et cetera."
The prospects for the market continue to look rosy. The conference heard that Poland is planning to issue a second green bond, and there are some 15 sovereigns in total planning to issue.
Peter Munro, a director of market practice and regulatory policy at ICMA, pointed to Asia as a region where supply is expected to grow rapidly in 2018, with "a lot of pent-up supply" ready to be released in countries such as China and Japan. In October, the sum of Japanese issuance of green, social, sustainable bonds was greater than in the two prior years, he pointed out.
ASEAN green bond standards launched by capital markets regulators in southeast Asia last week, which are largely commensurate with the GBPs, are "perfectly digestible for the market", and further help its development, Munro said.
However, the flurry of activity prompted one prominent green bond investor, who declined to be named, to warn that investors should not 'pay up' for green bonds.
"I believe the green bond market is now a strong market, sometimes with several deals in one day," he said. "This is good to see, particularly in the case of more corporate issuance, and issuance from corporates coming to the green bond market for the first time.
"However, investors must not get carried away and must continue to ensure they are receiving good or at least fair value. It is only this way that the market will remain sustainable."
Activity this week:
Orsted raises €1.25bn in two green issues
Orsted raised €750 million through a senior green bond and €500 million through a green hybrid issue. It claims this is the first green hybrid in Nordic region.
The green bond framework was given a dark green shade by Cicero, which noted the company's shift towards renewable energy.
SEB was green structural advisor for both the green hybrid capital securities and green senior bonds.
On the green senior bond transaction, BNP Paribas, Deutsche Bank, Rabobank and SEB were joint bookrunners.
Deutsche Bank was structuring advisor and joint bookrunner on the green hybrid, alongside Barclays, BNP Paribas and Nordea as joint bookrunners.
China Development Bank issues its first international green bond
China Development Bank (CDB) has made its debut in the international green bond market, raising $1.67 billion.
The bond, which consists of two tranches – one dollar-dominated and one euro-dominated – holds a CBI certification and follows the Chinese domestic green guidelines.
The proceeds will be used to finance green projects in water resources management, renewable energy and clean transportation along the Belt & Road initiative.
The transaction will be listed on the Hong Kong Stock Exchange and the China Europe International Exchange.
CDB's €1 billion ($1.175 billion) tranche has a four-year maturity, and was priced at MS+43bps with a coupon rate of 0.375%. Joint lead managers and joint bookrunners for the tranche were Bank of Communications, CCB Europe, Commerzbank, Crédit Agricole CIB, Deutsche Bank, HSBC, ING and SEB.
The US dollar tranche has a value of $500 million, a five-year maturity, and was priced at 78bps above Treasuries, with a coupon rate of 2.750%. Joint lead managers and joint bookrunners were Agricultural Bank of China Limited Hong Kong Branch, Bank of China (Hong Kong), BNP Paribas, China Construction Bank (Asia), Commonwealth Bank of Australia, Crédit Agricole CIB, Deutsche Bank and Standard Chartered Bank.
Both tranches attracted strong interest from international investors.
The bonds representing China's first ever quasi-sovereign international green bond, "demonstrates the Chinese government commitment towards a more environmentally responsible and green society", according to CDB.
France's AFD meets strong demand for its second green bond
L'Agence Française de Développement (AFD) has issued its second green bond to finance climate change mitigation and adaptation projects. The six-year, €750 million ($874 million) issue carries a coupon of 0.125% and met with strong demand from more than 100 investors.
From initial pricing thoughts of 30 basis points over the interpolated government bond rate, the deal eventually priced at a spread of 24 basis points, after the order book reached €2.9 billion. This was one of the largest order books ever achieved by AFD on a euro benchmark issue, the agency said.
A quarter of investors were based in France with 19% coming from Germany and Austria, 17% from Asia, 15% the Benelux countries and 11% from the UK. Asset managers bought 34% of the issue, with central banks and official institutions taking 30%, insurance companies and pensions funds 21% and banks 13%.
The bookrunners involved in the transaction were Société Générale CIB, Natixis, HSBC and Crédit Agricole CIB. The bond has been rated AA by S&P and Fitch and received a 'medium green' rating from the second opinion provider Cicero.
Manulife prepares green bond framework
Canadian insurance group Manulife has published a framework outlining its strategy to raise funds from green bonds to invest in a range of sustainable assets.
The company said it would use the proceeds of any such bonds, within 18 months of issuance, to finance or re-finance, new and/or existing green assets in the following categories:
- renewable energy;
- green buildings;
- sustainable management of natural resources and land use;
- energy efficiency;
- clean transport;
- sustainable water management; and
- pollution prevention and control.
"Manulife believes that investments in renewable energy, energy-efficient buildings, sustainably-managed forestry and other long-duration assets provide a good economic fit for our long-dated insurance liabilities, some of which continue for over 20 years," the insurer said.
As part of the evaluation and selection process for investing the proceeds, the insurer has established a green bond council that includes chief financial officer Stephen Roder and chief investment officer Warren Thompson.
The framework has been reviewed by the research and ratings firm Sustainalytics which said it is confident "that the Manulife green bond framework is robust, transparent, and in alignment with the four pillars of the Green Bond Principles 2017."
AfDB taps green kangaroo bond
The African Development Bank, has tapped a green 'kangaroo bond' first issued in 2016.
It raised an additional A$60 million, bringing the amount raised to A$115 million.
The issue has a 14-year maturity and a coupon of 3.5%. The tap was rated 'Aaa', 'AAA' and 'AAA' by Moody's, Fitch and S&P Global respectively, with Nomura acting as sole lead manager.
The re-offer price of the tap was 100.747% and the proceeds will be used to finance the following projects:
-Greenfield renewable energy generation
-Demand-side brownfield and greenfield energy efficiency
-Vehicle energy efficiency fleet retrofit or urban transport modal change
-Biosphere conversation projects
-Solid waste management
-Fugitive emissions and carbon capture
-Water supply and access.
Iberdrola returns to market with €1bn green bond
Spanish utility Iberdrola has issued a €1 billion green bond to finance renewable energy projects.
The perpetual bond is callable after five-and-a-half years. It is euro-denominated and has a coupon of 1.875%.
Vigeo Eiris provided a second opinion for the issue.
Credit Agricole CIB and HSBC were joint structuring advisors on the transaction.
The joint bookrunners were Banco Bilbao Vizcaya Argentaria, Barclays, BNP Paribas, ING, JP Morgan, MUFG Securities, Santander and Unicredit.
Deutsche Hypo raises €500 million with Green Pfandbrief
Deutsche Hypothekenbank (Hypo) has issued its first Green Pfandbrief, raising €500 million ($590 million).
The issue, which was more than twice oversubscribed, has a six-year tenor and a coupon of 0.125%.
Deutsche Hypo said that, given the strong demand, it could have further tightened the spread of 14 basis points below mid-swaps.
"In view of the investor interest and with the expectation of a good secondary market performance, the Bank intentionally abstained from this," it said.
The funds raised will be used to finance energy-efficient real estate. Oekom Research provided a second party opinion.
The underwriters were ABN Amro, Crédit Agricole CIB, DZ Bank, NORD/LB and UniCredit.
Inaugural €500 million Italian social bond
Cassa Depositi e Prestiti (CDP), has launched what it says is the first Italian social bond in the international capital market.
Proceeds from the €500 million transaction will support small and medium-size enterprises located in areas which are economically deprived or which have been hit by natural disasters. The bond has a tenor of 5 years and an annual coupon of 0.75%.
Pricing was fixed at 57 basis points above the reference mid-swap rate, around three to eight basis points lower than the pricing guidance and about 14 basis points over the equivalent Italian Government Bond, CDP said.
The transaction received a second party opinion from Vigeo Eiris, and is in line with the Social Bond Principles released by ICMA in June 2017.
The joint lead managers and joint bookrunners were Barclays, Crédit Agricole CIB, Citi, HSBC, Société Générale CIB and UniCredit. The issue, which will be listed on the Luxembourg Stock Exchange, received ratings of BBB (S&P), Baa2 (Moody's), BBB (Fitch) and A- (Scope).
Investment largely came from investment funds and management companies (49%) and banks (31%), while the remaining financing came from insurance companies and pension funds (13%), and central banks and other investors (7%).
Avangrid prices $600m green notes
US energy and utility company Avangrid has issued a $600 million green bond to finance renewable energy projects.
The offering is expected to close on 21 November and the notes, which have a coupon of 3.15%, are due on 1 December 2024.
Avangrid said it will use the funds to reimburse expenditures for the construction of a 208MW wind farm in North Carolina and the acquisition of a 56MW solar plant in Oregon.
The company, which has more than $32 billion in assets, forecasts a net investment programme of $9 billion by 2020, of which over $3 billion will go towards renewable generation and more than $500 million to grid and metering automation.
With the new green bond, Avangrid will make a positive contribution to two sustainable development goals (SDGs), namely affordable and clean energy (SDG 7) and climate action (SDG 13).
Avangrid has committed to reduce emissions intensity by 25% by 2020, to be carbon neutral by 2035 and to increase renewables installed capacity by more than 30% in the next two years.
Vigeo Eiris provided an independent opinion on the sustainability credentials of the green bond issuance.
BBVA, BNP Paribas, Citigroup, and Wells Fargo were joint book-running managers. BBVA was the green structuring agent.
Kepco confirms inaugural green bond
South Korea's largest electricity utility company Korea Electric Power (Kepco) has confirmed the issue of its inaugural green bond.
Kepco said the net proceeds of the notes will be used to fund or refinance the development of existing green projects.
It has invested KRW 270 billion ($246.6 million) on green investments between June 2016 and August 2017.
Kepco did not put a price tag on the notes. Local media have reported that the company plans an issue of $500 million.
This would make Kepco the fourth Korean issuer of green bonds, after Korea Export-Import Bank, Hyundai, Korean Development Bank and Hanjin.
Westpac plans to issue €500m climate bond
Australian bank Westpac is reported to have priced its second 'climate bond', a €500 million issue.
The net proceeds will be used to fund projects that meet the requirements of the Climate Bond Initiative's Climate Bonds Standard, and are fully aligned with the International Capital Market Association's Green Bond Principles.
Business or projects engaged in nuclear or fossil fuel energy operations, production or distribution of controversial weapons, coal mining or tobacco are not eligible for financing through the bond.
Eligible assets will be identified for inclusion in an aggregated common pool of Westpac climate bond assets for all of the bank's climate bonds. Proceeds raised under the bond will go into the Westpac general pool of funds, then tagged and allocated to investment in its climate bond asset pool, the bank said.
The bank's climate bond asset pool currently supports three categories of assets under the Climate Bonds Standard: renewable solar and wind energy (A$730 million); low carbon commercial buildings (A$1.1 billion); and rail transport (A$179 million).
Westpac has identified five of the UN's Sustainable Development Goals which projects in this pool currently contribute to:
- SDG 7: affordable and clean energy;
- SDG 9: industry, innovation and infrastructure;
- SDG 11: sustainable cities and communities;
- SDG 12: responsible consumption and production; and
- SDG 13: climate action.
Westpac's first climate bond, with a value of A$500 and a tenor of five years, was issued in June 2016.
Toyota has designs for fourth green ABS
Toyota Motor Credit Corporation is planning its fourth green asset-backed security, it emerged this week.
It has engaged Sustainalytics to review the framework, meaning that this is its first green bond that will have a second party opinion.
The proceeds of which will be used to finance new retail loan and lease contracts for less polluting Toyota and Lexus vehicles.
Fingrid explores potential €100m green bond
Fingrid is exploring a potential €100 million ($118 million) green bond issue to fund its investment portfolio.
The Finnish electricity transmission system operator has 32 projects set for completion in 2017. It has identified green bond eligible investment costs of around €150 million to fund 16 investments by 2018.
Cicero has provided the second opinion for the green bond issue. "Overall, Fingrid's Green Bond Framework together with its land use and environmental policy, commitments to corporate social responsibility, implementing Codes of conduct, and alignment with the Finnish National Climate and Energy Strategy, provide a sound base for climate-friendly investments," Cicero said.
Hong Kong and China Gas plans to go green
Hong Kong and China Gas has developed a green bond framework under which it will issue a green bond and use the proceeds to finance non-fossil fuel energy investments.
The utility company plans to focus on landfill gas projects, biomass waste-to-energy projects and waste treatment projects. Its target is to increase its energy efficiency by 5% in the next three to five years.
Sustainalytics, which provided the second opinion on the framework, said that although Hong Kong and China Gas is a fossil-fuel based company, it has demonstrated an intention to transition away from less carbon intensive fossil-fuel sources to a waste-to-energy approach.
Ferrovie eyes new high-speed trains with green proceeds
Italian state-owned rail provider Ferrovie is mulling its inaugural green bond issue to implement its plans to drive sustainable investment.
The state-run transport company has developed a green bond framework in accordance with the International Capital Market Association (ICMA) Green Bond Principles 2017.
According to the framework, the notes will have a tenor of six to 10 years and will be listed on the Irish Stock Exchange.
Ferrovie said it "strongly believes that rail and public transport are critical for sustainable development and global efforts to combat climate change" as it plans to invest in new electric trains and high-speed trains.
The total pool of eligible green projects until 2018 has a combined value of €950 million.
SpecialFastigheter publishes green bond framework
Swedish state-owned real estate company SpecialFastigheter plans to issue green bonds in accordance with the UN's SDGs, according to its green bond framework.
As part of future green bond issues, the company will also report in line with Global Reporting Initiative G4, sustainability reporting guidelines.
Specialfastigheter said the publication of its framework "illustrates its intention to enter the green bond market".
The framework, which obtained a second opinion by Sustainalytics, is aligned with ICMA's Green Bond Principles.
A list of eligible use of proceeds includes projects in the fields of renewable energy, energy efficiency, sustainable management of living natural resources, green buildings and sustainable water management.
Eurofima prepares to issue green bonds
Switzerland-based firm Eurofima has published a green bond framework, which it says "emphasises its determination in promoting sustainability and a low-carbon future".
The company, which provides financing services for railway industries, received a second opinion for the framework from Sustainalytics.
Proceeds will go towards financing the purchase of newly manufactured rolling stock and modernizing existing rolling stock in order to enhance the use of renewable energies, reduce energy consumption and CO2 emissions in the railway sector.
More details of many of these bonds will be published in Wednesday's Green Bond Round-up
Peter Cripps, Michael Hurley, Marine Durrieu, Nick Roumpis