Germany’s KfW issues largest ever USD green bond - $1.5bn! (AAAe, 1.75%, 5yr) and it’s still 1.6x oversubscribed

In Frankfurt yesterday I met with the KFW (Germany’s development bank) Capital Markets team, who ran through their latest green bond in USD. A strong result.

It's a follow-up to the success of their inaugural green bond back in July. At US $1.5bn the bond replaces IFC’s $1bn bond as the largest single issuance in US dollars to date. KfW is able to issue such large bonds because of the scale of its climate commitments - as mentioned on its website:

With total commitments of EUR 27.8 billion in 2013 alone, KfW Group invested nearly 40% of its entire new business volume in climate and environmental protection, thus making it one of the world's largest financiers of environmental protection measures.

The new green bond has a 5 year maturity and coupon of 1.75. The lead underwriters for the issuance were Bank of America Merrill Lynch, Citi and Morgan Stanley.

The bond was 1.6 times oversubscribed with KfW receiving $2.4bn orders. Investors were predominately US based. A third of investors were dedicated responsible (SRI/ESG) investors. Another third of investors were new to green bonds – showing there are plenty of potential green investors out there.

There was a strong demand from central banks for the bond. According to KfW - central banks accounted for 37% of investors (that’s huge!) and over half of the central banks were interested in green aspect of the bond. We have seen interest before from central banks in big issuances; for example the IFC $1bn issue was bought by Germany’s Bundesbank and the Central Bank of Brazil. Great to see central banks are still looking to add green to their portfolios.

KfW have gone to a lot of effort in providing reporting metrics around carbon savings. (We'll look more closely at that in a future blog).

One of the benefits for KfW is the opportunity the bond provides to engage mainstream investors on the environmental credentials of the bond and to educate them more broadly about KfW’s environmental work. That means, unlike some developmental banks, they don't restrict their sales to new investors, but are happy to allow investors already on their register to take green instead of their usual 'ordinary' bonds.

KfW have now issued $3.5bn of green bonds in the last 4 months! KfW’s first green investor report is “expected for the second half of October” – so keep an eye out as it is likely to be a gold standard report.