GB Mkt Report: Lots of new issuers of corporate bonds: French REIT FDR, Zhejiang Geely, Fabege; + hot off the press - India’s 1st certified bank bond from Axis

Corporate green bonds

In brief:

  • 6 new corporate green bonds + 1 expected soon
  • Debut green bonds from: Axis Bank, Fonciere des Regions, Fabege and Zheijiang Geely
  • Issuance from past 2 weeks exceeds USD 2.5bn
  • Largest bond: Toyota’s USD 1.6bn ABS

 

Hot off the press green bond gossip! India’s Axis Bank has issued India’s first Climate Bonds certified bond.

The transaction is expected to be denominated in USD, around USD 500m in size and have a tenor of 5 years. Joint bookrunners are Standard Chartered, with Bank of America Merrill Lynch, Crédit Agricole CIB and Axis Bank (Singapore).

Fitch has just given the proposed bond a BBB- and the bank is rated Baa3 (Positive) by Moody’s and BBB- (Stable) by S&P.

The deal has already attracted strong investor interests with the order book topping USD 1bn prior to US markets opening.

The green bond will finance renewable energy generation as well as low carbon transport projects - and it’s a Certified Climate Bond!

We’ll see a lot more issuance from emerging markets this year.

 

Fonciere des Regions (FDR) issues its first green bond €500m ($570m) for green office buildings in France, Germany and Italy, and is 5x oversubscribed (10yr, BBB, fixed 1.875%)

French real estate investment trust Fonciere des Regions (FDR) has issued a EUR 500m inagrual green bond. The bond has a 10-year tenor and fixed coupon of 1.85%. The bond is rated BBB by S&P.  The joint lead underwriters of the deal are BNP Paribas, Credit Agricole CIB, Credit Mutuel-CIC, HSBC, Natixis and Societe Generale.

Proceeds from the green bond will finance new or existing green office buildings in FDR’s portfolio. We’ve written a lot about qualifying buildings as green over the past couple of years, especially since our Technical Working Group on low carbon buildings launched the CBI Standard in 2015.

From this work we know that buildings need to be aiming for the high end of certification schemes and ideally also disclose the energy efficiency performance compared to local base lines.

FDR’s green bond qualifies green buildings as those that achieve a minimum green building certification of BREEAM Very Good or HQE 9/14 score. Excellent – as this means the assets are more aligned with low emission performance.

It would be good to see further disclosure on the actual energy use relative to a baseline for the buildings to give a fuller picture of their green attributes and performance.

EY will provide annual assurance of the allocation of proceeds to eligible green projects.

 

Swedish property company Fabege issues debut SEK600m (USD 71.8m) green bond and attaches ‘Green Terms’ to medium term note program.

Fabege, the Swedish property developer and manager has just issued its first green bond - a SEK600m bond for its green buildings with a tenor of 2 years and a floating coupon of 0.826%.

The bond proceeds will be used to finance existing, or the development of new real estate, with a certification of at least either Miljöbyggnad Silver or BREEAM SE Very Good. 

While BREEAM is the more well-known certification standard, we’ve seen the Miljöbyggnad certification system used in bonds such as Förvaltaren and Örebro early this year.

Fabege has committed to annual reporting on energy usage metrics and the percentage of renewable energy used for electricity. In addition, Fabege has attached these ‘Green Terms’ to its Medium Term Note program. This means all future bonds issued under this program will also comply with these terms – nice touch!

Lead Manager was Handelsbanken while Sustainalytics provided the second review.

 

Zheijiang Geely issues first green bond to green London taxis

Chinese carmaker Zheijiang Geely, has just issued a USD 400m debut green bond to finance the greening of London black cabs by its subsidiary London Taxi Company (LTC). The 5 year bond has a fixed coupon of 2.75 and a rating of A1e from Moody’s. Lead managers were Bank of America Merrill Lynch, Bank of China, Barclays and Societe Generale.

The proceeds will be used to finance the development of the TX5, a hybrid battery-powered version of the classic 1958 FX4 black cab; so its hybrid rather than full electric. However, the TX5 is intended to comply with new regulations for London taxis which require all vehicles licenced for the first time after 1 Jan 2018 to be petrol-hybrid or meet Euro 6 emissions standards. From 1 Jan 2020 all new vehicles must be zero emissions capable.

LTC is one of 14 taxi companies that are in an initiative to introduce more zero-emission capable vehicles in the market.

Deloitte has provided a second opinion and Geely has become the first green bond issuer to use a standby letter of credit (SBLC) to enhance its rating. Bank of China London Branch is providing the SBLC, giving the deal an A1/A/A level.

Chinese issuance that will help lower London emissions – a great example of cross-border green city bond work!

 

Wallenstam issues a SEK400m (USD 48m) green bond to refinance wind turbines

Swedish property company Wallenstam has issued it first green bond (the first came out last year) to refinance wind turbines in its subsidiary Svensk NaturEnergi.  

The 2 year bond will mature in 2018 and has a floating coupon of quarterly STIBOR +95 points. Swedbank has acted as the lead manager and its shadow rating of the issuer is BBB flat and BBB- on the bond loans.

Wallenstam retained DNV GL to provide an review on its Green Bond Framework. Svensk NaturEnergi has 64 wind turbines with output of 139MW.

Our opinion - Wind power is as simple as it gets in terms of ‘greeness’, it’s in! And, as we’ve mentioned before, refinancing is the main role of bonds in the capital pipeline.

Refinancing through bond issuance allows companies to take on short term bank lending for the construction phase of a project and then pay the loan back by issuing bonds once the construction phase is over.

As construction is usually the highest risk part of a project, bond issuance post-construction can provide a longer-term lower cost of capital.

 

Green Asset Backed Securities

 

More green vehicles! Toyota Finance issues its third green bond linked to leases and loans for EVs and Hybrids; this time a whopping $1.6bn across 6 tranches (AA+/A1, 1-6yr tenor, 0%-1.52% cpn)

Toyota Finance, the US lending and leasing arm of Toyota Car Manufacturers, issues a third green asset backed security (ABS) following its 2014 and 2015 issuance. Similar to its predecessors, the latest green ABS finances loans and leases to eligible green vehicles.

The deal is split across 6 tranches with tenors ranging from 1 to 6 years and fixed coupons ranging from 0 to 1.52%. The green ABS is rated AA+ by S&P and A1 by Moody’s. The lead underwriters for the deal are Citigroup, RBC and Lloyds. Strong investor demand meant the deal was upsized from $1.2 to $1.6bn.

This issuance comes hot on the heels of an inaugural RMB 2.5bn ($384m) green bond from Chinese car manufacturer BAIC Motors and a $500m green bond from Hyundai Capital Services in March.

Proceeds from the ABS will finance new loans and leases for a specific set of ‘green’ Toyota and Lexus Hybrid and Electric vehicles.

 

The Low Carbon Transport Criteria- How Do Vehicles Match Up?

Under the low carbon transport criteria  of the Climate Bonds Standard, any electric and fuel cell private passenger vehicles are automatically eligible under the standard.

Hybrid private passenger vehicles must have carbon emissions lower than 87gCO2/passenger-km to be eligible now, falling in 2020 to 75gCO2/passenger-km and falling again every five years thereafter until 2050.

The Climate Bonds Standard aims to set the bar high to encourage the highest emission reductions. This means that at the moment only Toyota’s Mirai vehicle would be eligible for certification.

As a comparison Hyundai’s hurdle rate is 110 grams of CO2 P/Km while BAIC Motors is estimated around 122 grams of CO2 P/Km which makes neither of them eligible (on average, although specific cars may be included).

Good start from the car makers but some of the cars in their pools are not that ambitious in terms of emissions - they need to keep pushing!

 

TenneT’s second green issuance - this time it's a green schuldschein

Dutch national electric transmission utility TenneT issued a €500m Green Schuldschein after last year’s green bond debut (if you are wondering what a Schuldschein is, here is a quick summary).

The deal was issued in 6 tranches with maturity ranging from 6 to 20 years and coupon from 0.646% to 2%; Oekom provided the second review. It was more than twice oversubscribed and received interest from German and international investors.

TenneT’s Green Bonds Framework has also been reviewed by Oekom.

The green instrument will finance 3 projects located in the North Sea (“DolWin 1, 2 and 3”) aiming to transfer wind electricity from offshore plants to the onshore electricity grid. Material used will be a combination of onshore and offshore cables and convertor stations.

This aligns perfectly with our renewable energy taxonomy.

A regular reporting will be made available to investors and will include: the projects’ allocation of proceeds; updates on projects being under construction; and key environmental and social impact performance indicators.

 

Still to Come this Week- Big Moves in Muniland and lots more Market Gossip.

The Markets Team

 

PS. Know someone who would like to know more about green bonds?

Send them the link to our latest ‘GreenBonds 101’ Webinars, 25th May.

 

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