Germany’s NRW Bank issues 2nd AAA green bond: EUR 500m ($636m) 4yrs. 2x over-subscribed in 3 hrs! Water, wind & energy efficiency

German regional bank NRW last week issued their second green bond - EUR 500m with a 0.25% coupon and a 4 year tenor. The bond is double the size of their inaugural green bond in November 2013. The bond priced at mid swaps -10bps. Underwriters were DZ Bank and HSBC; rating by Fitch. Prospectus is here.

Bond proceeds will be used to fund energy efficiency (low carbon buildings), renewable energy (wind) and climate adaptation (river restoration and waste water treatment) projects.

Interestingly, proceeds will be allocated to both refinancing of loans as well as financing of new projects. We like this.

Bonds are primarily a refinancing tool; encouraging that for green investments will “pull through” capital from equity and lending markets by providing them an exit strategy. They’ll then be able to recycle their capital into new projects, where their close understanding of project risk is needed. Imagine a wave of new projects funded by development risk-savvy equity and bank lending, followed by a calm institutional investor sea of low-risk post-construction climate bonds, and you get the idea.

With their first bond last year, NRW Bank did not get a second party opinion on its green credentials. Second opinions provide investors with confidence in the greenness of the bond, and this time we’re delighted to see that NRW Bank decided to get a second opinion - from Oekom Research.

The majority of proceeds will towards climate mitigation and adaptation projects, with the remainder to environmental clean-up projects.

The bond has clearer and detailed eligibility criteria. For example, the Oekom report tells us that to be included:

  • Loans for the construction or renovation of public buildings must lead to energy performance of 20-30% below those specified by the German Energy-Saving Ordinance (EnEV);
  • Loans to small or medium enterprises are only eligible if the “percentage improvement reaches or exceeds 20% for energy efficiency and/or 10% for resource efficiency”.  
  • Wind projects — there are 10 — must meet the Climate Bond Standards for wind. Nice.

Proceeds will also go to:

  • A restoration project on the Emscher river. Restoration to the natural state of watercourses is now understood to be an important part flood management, and this is especially important when climate change will lead to heavier rainfall and stronger river flows.
  • Wastewater treatment will recycle sludge to biomass for use in biogas power plants.
  • Asbestos clean-up.

Overall NRW Bank’s bond is pretty darn green.

Investors were certainly keen on the bond. Orders for almost double the book were received within three hours. Overall there were 35 separate orders placed and NRW gained the investor diversification they (and most issuers) were looking for.

Specialist socially responsible investors (SRI) comprised 50% of the buyers. Asset Managers accounted for 39% of the book with Central Banks and Public Institutions taking a further 36% and Banks the remaining 25%. The majority of investors were German with the remaining split across Europe, Asia and Africa:

  • Germany 35%
  • Switzerland 16%
  • Scandinavia 8%
  • Netherlands 17%
  • Other Europe 8%
  • Asia 6%
  • Africa 10%

Great work NRW!