Commercial banks
Banco Nacional de Costa Rica taps green bond market for the first time with a $500m high-yield issuance (5.875%, 5 yrs, BB+)
Banco Nacional de Costa Rica issued its inaugural green bond, making it the fourth LATAM green bond issuance following Energia Eolica in Peru, Brazil’s BRF and the Climate Bonds certified Nacional Financiera bond from Mexico.
The BNCR $500m issue has a tenor of 5 years, a coupon of 5.875%, and was rated Ba1(Moody’s) and BB+(Fitch). Bank of America Merrill Lynch and JP Morgan acted as joint lead book runners.
Proceeds will be used for renewable energy - including wind, solar, and hydro - and wastewater projects. For the hydro component, Banco Nacional will only invest in projects with a maximum installed capacity of 50MW.
Banco Nacional is leveraging Costa Rican environmental protection regulations (Secretaria Técnica Nacional Ambiental (SETENA)) to determine eligible projects.
However, we are keen to learn whether the hydro projects to be funded are run of river or dam based as this is crucial in determining climate impact. Larger hydro dams in tropical regions can have high methane emissions, in part due to accumulation of sediments rich in organic material producing methane and its subsequent release via bubbling or off-gassing.
More disclosure about the criteria for wastewater projects would also be helpful.
Banco Nacional did not obtain independent review of the bond, but they commit to online reporting on the use of proceeds, including fund allocation and estimated environmental impact. The information will be available within one year of issuance and last until the proceeds are fully expensed.
We hope to see additional information on mitigation and adaptation for both the hydro and wastewater projects included in the forthcoming rounds of environmental impact reporting.
Next time, hopefully we can also see some of this information included at the time of issuance.
Overall, congratulations to Banco Nacional de Costa Rica! Another LATAM bank taking a leadership position and adding diversity to the green bond market.
Development banks
Another Climate Awareness Bond (CAB) issued by EIB and it is $1.5bn! (10 yrs, S/A 2.125%, AAA)
The European Investment Bank (EIB) issued its fifth Climate Awareness Bond (CAB) of the year for sizable $1.5bn, with a 10-year maturity, a semi-annual coupon of 2.125%, and rated Aaae (Moody’s) and AAA (Fitch). Joint lead managers for the deal were Barclays, JPMorgan and BofA Merrill Lynch.
In line with previous CABs, proceeds will be used to finance renewable energy and energy efficiency projects. Coal and nuclear power are strictly excluded from the framework and hydropower projects are subject to specific criteria, being eligible only if "the net or relative GHG emissions of the project are negative, i.e. the project results in GHG emission savings compared to the project baseline.”
EIB publishes impact reporting in the CAB annual newsletter on their website, including GHG emissions avoided and energy consumption saved.
According to the April 2016 newsletter, 90% of previous CAB proceeds were distributed to renewable energy and the remaining 10% to energy efficiency in 2015.
The CAB allocations in 2015 are estimated to save 1.3m tonnes of 'prorated' CO2 emissions while the renewable energy projects launched in the same year will help to build or renovate approximately 719 MW of 'prorated' power generation capacity, equivalent to taking a 350 MW fossil-fuel fired power plant out of operation.
Well done on the new issuance and detailed reporting from EIB.
World Bank issues another two index-linked Green Growth Bonds ($16.4m and $ 1.4m, 0%, 8 yrs and 9 yrs, AAA)
The World Bank issued two more Green Growth Bonds to retail investors in Europe and the United States respectively. The European issuance ($16.4 m, 8-year tenor, 0% coupon) was linked to the Ethical Europe Climate Care Index, and the U.S. deal ($1.4 m, 9 years, 0% coupon) was linked to the Ethical Europe Equity Index.
BNP Paribas was the sole lead underwriter for both deals.
Green Growth Bonds are the index-linked subset of the World Bank’s Green Bond program. This puts the cumulative World Bank Green Growth Bond total at $555m through 16 issuances. The majority of these bonds ($389m) have been purchased by international retail and high net worth investors, with the remaining share ($167 million) picked up through institutional private placements with European insurance companies, pension funds and private banks.
Cicero provides a second review for the World Bank’s Green Bond Framework, which applies to all green bonds issued by the bank.
Eligible projects listed in the framework include:
- renewable energy,
- energy efficiency,
- new technologies in waste management and agriculture,
- forest and watershed management, and
- new infrastructure to prevent climate-related flood damage.
World Bank’s repeat green bond issuance of $280m (2yrs, 1.005%, AAA)
World Bank also issued a $280m issuance of 2-year tenor, 1.005% coupon, rated AAA (S&P) and Aaa (Moody’s). JP Morgan was the sole lead manager for this transaction.
California State Treasurer’s Office was the lead investor, and other investors included Calvert Investments.
Similar to the green growth bonds mentioned above, nominated projects of this bond are aligned with the World Bank’s Green Bond Framework, for which Cicero provided a second review.
That’s all we have on banks this time around,
Watch out for our next blog on the nascent China green bond market,
The markets team.
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