This week we have a lot of exciting green bond gossip about a strong pipeline of really diverse issuance coming through.
Second green issuance from Stockholms Lans with SEK 1.8bn ($215) green bond in two tranches (SEK1.5bn, 6yr, 1%, AA+ and SEK300m, 6yr, £MS+32BPS, AA+)
Following the success of its inaugural green bond last May, Stockholms Lans Landsting (SLL) has issued another green bond, and this time it’s slightly bigger SEK 1.8bn ($215m). The bond has two tranches of SEK 1.5bn ($179) and SEK 300m ($36m) both with 6-year tenor but with differing coupons. The larger tranche has a fixed coupon 1% and smaller tranche has a floating at 3MS+32bps. The bond is rated AA+ by S&P.
Banks and retail investors accounted for 55% of the larger SEK 1.5bn (fixed) tranche and the majority of the remaining went to insurance and pension funds (43%) and asset managers (2%). By comparison the smaller tranche, with floating coupon, was dominated by the insurance and pension funds (78%).
SLL’s 2014 green bond framework will be used also for the 2015 issuance. CICERO provided a second opinion on the framework. Proceeds can finance sustainable public transport, green buildings, waste management and water management.
Reporting on last years bond is available on SLL’s website and shows two projects were funded with the proceeds: Roslangsbanan rail expansion (SEK 915m) and construction and renovation of Sodertalje hospital (SEK 185m). One aspect to note SLL has reported using proceeds for noise reduction investments - not what we’d consider as climate investments. That said, the majority of the proceeds are going towards climate investments (rail and low carbon buildings).
Lloyds issues its second ESG bond for £250m ($385m) (7 yrs, 2.5%, A)
Another repeat issuer this week was Lloyds, who issued another Environmental Social and Governance (ESG) bond in sterling, this time for GBP250m ($385M). Another repeat issuer this time the bond has a 7 year tenor and 2.5% coupon. S&P gave the issue an A rating. Lloyds was the sole underwriter of the bond. This is an “ESG” bond not a green bond meaning proceeds will finance a mixture of green and non-green (social) projects.
Now, an ESG bond is not the same as a green bond, as proceeds are earmarked to social projects as well as environmental ones. Proceeds from Lloyds’ bond will be allocated based on the ESG framework created by Sustainalytics for Lloyds 2014 ESG bond, which includes a mix of social and green projects in the eligibility criteria. It’s not clear what the split of green is (loans to farmers for solar projects) compared with the social (Small and medium enterprise loans based on disadvantaged areas of UK). We expect it to be much heavier on the social side than the green but that will depend on Lloyds loan book come the end of year. So we are unlikely to discover the split until reporting however it’s clear that responsible investors are keen on this hybrid bond type and it is great to see best practice guidelines on transparency have been followed.
Unlabelled climate bonds
United PV issues $100m of convertible bonds for acquisition of solar assets (3yr, 6.75%, no rating)
Chinese Solar Energy Company United Photovoltaics Group (United PV) issued US$100m of convertible bonds. The bond has a 3-year tenor and 6.75% annual coupon. The bonds will be convertible into shares at HKD 1.48 (US$0.19). Shenzhen China Merchants Yinke Investment Management was the sole investor in the deal.
The proceeds will be used to finance the acquisition of solar assets. Good to have this granularity for use of proceeds! As United PV is a pure-play company (i.e. all company assets are aligned with a low-carbon economy), disclosure and reporting on use of proceeds, as we see in the labelled green bond market, is not required for it to qualify for our unlabelled climate bond universe. But we’d welcome them to start labeling their bonds as green to improve discoverability for investors, as Danish pure-play wind developer Vestas started doing in March this year.
United PV also announced a separate plan to issue US$50m of notes to finance the acquisition of another solar operator, Hareon Solar Technology. Both deals are part of the wider story of solar assets acquisitions by Chinese operators to consolidate the solar industry in China.
NRW Bank issues green bond report on their 2014 GB – includes impact reporting
NRW Bank issued their first annual green bond report on their 2014 EUR500m green bond issuance. The report includes disclosure on the full use of proceeds (74% for renewable energy and energy efficiency and 26% for water), and it offers environmental impact assessment on about 2/3 of the use of proceeds. In total, they estimate that total emission reductions triggered by the underlying projects accumulate to more than 800,000 tons during the life time of the bond, which translates to 400 tons of CO2 saved per EUR 1 million of investment. The share currently not included in the impact reporting includes construction and administration buildings, which are reported to have a positive climate impact, as the buildings adhere to the EU Energy efficiency Directive 2016. Great level of detail provided by NRW!
Green bond gossip
BRF is issuing the first Brazilian green bond AND first green bond in the food sector! Roadshow next week (EUR denominated, Baa3/BBB/BBB-)
The most exciting piece of news this week came from Brazilian food producer BRF who are set to issue the first Brazilian green bond! Fantastic to see another emerging market giant starting their green bond adventure.
The issuance is not yet finalised so we’re still waiting for details on the size, tenor and coupon, but the green bond will be in Euros and have the corporate rating of BRF (Baa3/BBB/BBB-) - as any other earmarked green bond issuance. Underwriters will be BNP Paribas, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Morgan Stanley and Santander.
And not only that – it’s the first green bond in the food sector! Although BRF hasn’t yet disclosed what the use of proceeds will be earmarked for - we expect more details to emerge after the investor discussions next week.
BRF will be the second domestic Latam issuer of labelled green bonds after Peruvian Energia Eolica’s $204m issuance for wind energy in December last year.
Another Latam first: Green ABS deal in Mexico inches closer! First phase to finance portfolio of $125m of energy efficiency receivables close – getting ready for bond issuance
The Inter-American Development Bank (IDB) and the Clean Technology Fund (CTF), part of the Climate Investment Funds, have joined forces to support the issuance of $125m of green asset-backed securities backed by energy efficiency loans in the Mexican domestic debt capital markets. It looks like it will be the first labelled green bond in Mexico - and it’s extra exciting that it’s also an ABS deal!
So far, only the preliminary stage of the ABS deal is completed: a portfolio of $125m of energy efficiency receivables suitable for bond issuance have been financed. To achieve this, the IDB has offered a $50m warehousing credit line used to purchase energy efficiency receivables from two Mexican Energy Service Companies (ESCOs), ECON Soluciones Energéticas Integrales, S.A.P.I de C.V. (ECON) and Veolus Energía y Gestión Técnica S.A. de C.V. (VEOLUS). Importantly, the receivables included in the portfolio are standardised, which is crucial to facilitate subsequent bundling into sizeable asset-backed securities.
In the next phase, the portfolio will be securitized and green ABS issued in the Mexican bond markets. To make the deal a good fit with the risk-return profile of investors, credit enhancement will be provided through $19m of guarantees from the Clean Technology Fund.
This deal has been in the pipeline for years – getting the first securitisation deals for a new assets class done in emerging markets can be tricky. Great job by IDB and partners for getting it off the ground! And, the CEO of one of the ESCOs has already said he’s keen for similar deals in the future; this is just the beginning.
The potential for asset-backed securities in the green bond market is increasing, and it’s crucial in emerging markets where many low-carbon and climate resilient investments will be too small-scale and disaggregated to access the bond markets otherwise.
More solar bonds expected from pioneer SolarCity and SunEdison
Climate bond pioneer SolarCity, the largest solar developer in the US, is planning for another issuance of solar asset-backed securities, although the timing is not finalised. SolarCity was the first issuer of solar asset-backed securities back in 2013, and repeated the success with two subsequent larger ABS deals in 2014. The latest, issued July 2014, totalled $201.5m and achieved investment grade rating (BBB+). We look forward to seeing the details of the upcoming deal.
SunEdison has announced plans to issue two convertible senior bonds for a whopping $750m! Proceeds will be used for mergers and acquisitions. The issuance is split into $375m of 8-year bonds with 2.625% coupon and $375m of 10-year bonds with coupon of 3.375% - plus there will be an additional 30-day option for another $75m of issuance.
ABN Amro is roadshowing green bond with BAML/CA
Dutch bank ABN Amro is roadshowing a green bond. According to Environmental Finance, a green bond framework has been developed and the planned green bond issuance will be Euro-denominated, senior unsecured bonds.
Australia and New Zealand Banking Group (ANZ) is issuing a green bond that is Climate Bonds Certified!
And last, but not least, Australia and New Zealand Banking Group (ANZ) is issuing a green bond that is Climate Bonds Certified. EY has verified the bond issuance against the criteria of the Climate Bonds Standard for renewable energy, and the newly released criteria for Low-Carbon Buildings. Details to come.