This week saw the first labelled green bond from the Asian Development Bank (ADB), which marks an important step forward from a leader in the Asian market. Pure-play wind power company Vestas closed its inaugural labelled green offering - important because it opens the door to other pure-play companies that have the potential to issue green. Another green guarantee was issued by OPIC with proceeds funding a wind project in Pakistan.
Although not included in our green bond universe, we also comment on the latest thematic offering with a green aspect from the German state North Rhine-Westphalia. They have issued a sustainability bond with 41% proceeds going toward green projects.
Then there is the green bond from Thai oil company Bangchak. We’ve mentioned this bond in a couple of previous blogs, but can’t find enough information from Bangchak to recognise it as a green bond. While there has been one interview in a newspaper to say the bond was green, there’s no reference to a green bond on Bangchak’s website or in any of its public statements or press releases - let alone details on use of proceeds. Until we get further disclosure, we can’t be confident in recognising this as a green bond.
Finally – there is a LOT of green gossip this week! Look out for green bonds from India’s Export-Import Bank and Solar City. World Bank has announced a retail offering for European investors. Credit Agricole has made public its green bond framework and reporting mechanisms. Plus latest gossip out of Scandinavia: Norges Bank Investment Management (NBIM) disclosed in their 2014 annual report that it now runs a specific green bond mandate, and the most recent green bond from Swedish real estate company Vasakronan was significantly upsized from SEK120m to SEK400m due to huge Swedish investor demand.
Development banks
First ever labelled green bond from ADB - $500m, 10yrs, 2.12% semi-annual coupon, AAA
The Asian Development Bank (ADB) issued an inaugural $500m, 10 year, labelled green bond with a 2.125% coupon. The bank is rated AAA, Aaa, AAA by S&P, Moody’s and Fitch respectively. Lead managers are Bank of America Merrill Lynch, Morgan Stanley and SEB.
ADB is no stranger to thematic bonds having issued over $2bn of clean energy and water bonds in the past 5 years; now they have caught on to the benefits of adopting the green bond label. With approval to finance over $3bn of climate projects, the scope for ADB to scale up their green bond issuance is significant.
A large proportion of the bond - 31% - was sold to Asian investors – a great sign for the Asian market! Overall 44 different investors participated in the deal including large insurance companies and fund managers.
Proceeds will fund renewable energy (solar, wind, geothermal, small hydro), energy efficiency, sustainable transport, and climate adaptation projects. CICERO provided a second opinion on the bond. In terms of reporting, ADB will provide a list of funded projects on their website in addition to annual newsletters to keep investors up to date with use of proceeds.
Brilliant work on the first labelled bond, ADB!
OPIC issues large green guarantee to fund Sapphire wind power project in Pakistan; $46.5m, 10 year, coupon linked to quarterly T-bill (0.11%)
OPIC issues a $46.5m green guarantee with 10 year tenor and coupon linked to the quarterly T-Bill (est. 0.11%). Bank of America Merrill Lynch was the sole underwriter in the deal. It’s the second largest green guarantee to date from OPIC only just trailing the inaugural green guarantee at $47.3m last September.
This green guarantee is linked to a wind power project in Sindh, Pakistan. The project is a 50 megawatt wind power project with local company Sapphire Wind Power. OPIC has made loans of approximately $95m (with various tenors) for the project. It’s great to see OPIC supporting wind power projects in developing countries and then successfully turning over the loan into green guarantees for intuitional investors to enable more lending. We are big fans!
Corporate
Danish pure-play wind turbine manufacturer Vestas issues EUR500m green bond, 7yr tenor, 2.75% annual coupon, no rating
Danish wind turbine manufacturer Vestas issued a EUR500m green corporate bond. The bond has a 7 year tenor and a coupon of 2.75%. Lead managers were Citi, HSBC, Nordea and Société Générale.
Vestas is the first green pure-play to label one of its corporate bonds as green. By pure-play we mean the entire business fits into green categories - in this case manufacturing for wind power. Because it’s a pure-play there is no need to earmark proceeds for a list of eligible green projects, as is the case for non-pure play issuers.
Vestas will use proceeds from the corporate bond “for general financing and general corporate purposes” which, since it is a pure-play wind company, count as green. Reporting on the use of proceeds will be shown, as with all corporate generalpurpose bonds, though annual financial statement. Despite a lack of mention in their announcements, we can confirm that they got a “second party green bond verification” from DNV-GL. Excellent! We understand that the DNV-GL report will be going up on the Vestas web site.
We estimate these climate-themed, unlabelled pure play issuers to have $506.2bn of bonds outstanding, making it a sizeable market opportunity. Vestas has led the way by starting to label its bonds as green – other issues can follow suit.
Other thematic bonds with a green aspect
State of North Rhine-Westphalia, Germany, issues EUR750m ($795m) sustainability bond; TENOR, 0.5% annual coupon, AA
The state of North Rhine-Westphalia (NRW), Germany, has issued its first sustainability bond for EUR750m ($795m), with 22 year tenor and a 0.5% annual coupon. S&P, Moody’s and Fitch have rated the bond AA-, Aa1 and AAA respectively. The bond was met with strong interest, leading to the bond being upsized from EUR 500m, according to Environmental Finance. Fund managers took the largest share of the book (35%) with banks coming in a close second (33%).
Now, the bond is a sustainability bond with proceeds split between funding both green (approx. 41%) and social non-green (59%) projects. It is great to see that NRW State got a second opinion from Oekom. The second opinion provides a high level of detail on the use of proceeds which will be split in six categories: education and sustainability research, inclusion and social coherence, public transport and local mobility, climate protection and energy transition, protection of natural resources, and sustainable urban development.
For issuers that do not currently have the scale of green projects required to issue a green bond – such thematic (sustainability or ESG) bonds are a great for gaining sufficient size by gathering different projects/assets. This approach can appeal to certain investors with SRI or ESG mandates, as it meets their social and environmental aims in one investment. Having said this, CBI focuses on green because of the imminent need to take action on the climate – we just have to look to the Pacific this week to see an example of the kind of challenges that climate change will increasingly throw our way.
Not yet classified as green or not
Strong demand for Bangchak Petroleum’s THB3bn ($92.5m) bond; 12 year and 15 year tenor with 4.72% coupon and 5.05% coupon respectively, A- local rating – it is labelled as green according to the press – but we can’t find the evidence to include it!
Thailand majority state-owned oil Bangchak Petroleum issued a THB3bn (US$92.5m) bond. The issue consisted of two tranches: a 12-year bond with a 4.72% coupon, and a 15-year bond with a 5.05% coupon. Underwriters were Standard Chartered Bank (Thailand). The bond is rated A- by local rating agencies.
Now, according to the one news article this is a green bond! Hurrah – a Thai green bond, fantastic to see more green bonds from Asia. But, unfortunately when we looked for more details, in particular on the use of proceeds, the process for monitoring proceeds and allocation of proceeds and reporting, we could not find the necessary info on the company website, press statements or in any public report. Now, this doesn’t mean its not a green bond – just that with the low level of information available that it CBI cannot qualify it as a green bond.
Had it been from a green pure-play, like Vestas, we wouldn’t be worried. But Bangchak is an oil refining and retailer. Of course, the beauty of the green bond market is a non-green issuer can issue a green use of proceeds bond — it’s about green assets not only green companies. But this requires robust processes for tracking, allocating and reporting on proceeds to give investors confidence that the bond is actually green.
The lack of information on this issuance is a real shame because it looked like a fairly green bond based on the information we found in the media. According to the press statement, proceeds will be used as part of the company plans to invest THB30bn (US$920m) in a six-year plan to develop solar, waste-to-power, and geothermal plants. Growing a renewables sector in developing countries is key to a low carbon economy and so too is enabling energy companies make the transition from brown to green assets. In this light, Bangchak has potential for green bonds but next time it must get a second opinion from an independent third party and provide detail on use of proceeds.
Green bond gossip
Norges Bank Investment Management (NBIM) has a specialist green bond focus according to their annual report. Great news for green bonds since NBIM currently manages assets worth NOK 6431bn ($779bn) with 37.3% allocated to fixed income.
World Bank announced a second green retail offering for European Investors. Similar to the first the bonds coupon is linked to the Ethical European Equity Index.
Another topic hot off the press is that Credit Agricole has made public its green notes framework. Up until now, the large issuer of green bonds has been providing in-depth disclosure mainly to its Uridashi green bondholders rather than to the public. The framework shows that the green bonds are backed by loans for green real estate, waste & water management, energy efficiency, public mass transport, sustainable agriculture and forestry, and renewable energy. Currently the majority of the loans fall into the renewable energy (34%) and green real estate (32%) categories.
Finally, some interesting news from Sweden – last month we covered the modest Vasakronan bond. It seems that we had old information, although it started at SEK 120m ($14.3m) it ended up being upsized to SEK 400m ($47m) across four tranches due to huge demand from domestic investors. Interestingly Vasakronan’s green bond programme has attracted 46 investors including 29 new to investing in Vasakronan bonds; showing that investor diversification is a real benefit of issuing green bonds. And, the next green bond report will be posted soon to their website – so keep your eyes peeled! Excellent news, Vasakronan!
Upcoming bonds to look out for: SolarCity, IFC, World Bank and Export-Import Bank of India
