Corporate green bonds
Second green bond from TerraForm to finance wind power acquisition, $300m 10yr, 6.125% s/a coupon, BB-/B1
TerraForm Power Operating, the yieldco spin off from SunEdison, has issued a second green bond shortly after tapping its inaugural green bond for a further $150m (making their first green bond a whopping $950m!). The new $300m green bond has 10-year tenor and semi-annual coupon of 6.125%, and was issued in the US private placement market. It is sub-investment grade with a rating of BB- from S&P and B1 from Moody’s. Underwriters for the deal were Bank of America Merrill Lynch, Barclays Capital, Citi, Goldman Sachs, Macquarie, and Morgan Stanley.
Proceeds from the bond will be used mainly to finance the acquisition of 460MW wind power plants from Invenergy, with the remaining proceeds used for other eligible green projects. As with its first green bond, Terraform chose not to get a second review on the green credentials of this bond, presumably because it is a renewable energy business with no brown assets on the books.
Great to see another issuer coming back to the green bond market for more!
First labelled green bond from a Chinese company, Goldwind, is launched in the Hong Kong market,$300m, 3yr, 2.5% s/a coupon, A1 (credit enhanced)
As we already mentioned in a special blog last week, Xinjang Goldwind Science and Technology is the first Chinese corporate to issue a labelled green bond (though technically speaking, the bond was issued by its wholly owned Hong Kong-based subsidiary). The $300m green bond issued in the international dollar market was a massive success with an orderbook of $1.4 billion! The bond has a 3-year tenor and semi-annual coupon of 2.5%, and credit enhancement by the Bank of China (Macau) brought it up to an A1 credit rating. The lead underwriters for the deal are Bank of China, Deutsche Bank and Societe Generale.
We’re happy to see that Goldwind got DNV GL to do a second review of the green bond, giving investors confidence in the first green bond issuance from a new country. (Although, the domestic Chinese green bond market will be governed by official guidelines for what is green rather than the second opinion model).
Now, it’s worth highlighting that the Goldwind green bond does not follow the use of proceeds model most commonly seen in the green bond market where the proceeds of the bond sale are earmarked to finance specific eligible projects. Instead, Goldwind’s green bond is a general-purpose bond that allows proceeds to be used for any expenditure by the company. The reason investors can accept this different structure is that the green bond is issued by a pure-play company (meaning over 95% of revenues are from climate-aligned assets). This gives investors comfort that proceeds will be used for green - in Goldwind’s case, wind power plants and wind turbine manufacturing assets. It is the same model used in Danish corporate wind manufacturer Vestas’ green bond earlier this year.
We’re all for pure-play issuers labelling their bonds as green to improve discoverability for investors. But we were a bit surprised that there are no plans for additional reporting on the actual use of proceeds of Goldwind’s green bond, as in theory the company could use proceeds to finance any project – green or not so green. Of course, since Goldwind’s a pure-play wind developer, it’s almost certain that the company will use the proceeds on fully climate-aligned wind projects. But it would be good to see reporting on this to provide certainty for investors.
There are many firsts to come for Chinese green bonds this year – in particular we are waiting for the first green bonds in the overseas RMB and domestic Chinese bond markets that has a seal of approval from the central bank and financial bond regulator, PBoC. We’re expecting these to be coming to market later in 2015.
Development Banks
KfW issues another benchmark green bond, this time in sterling (£500m ($780m), 15yr, 1.625% annual coupon, AAA)
German development bank KfW continues to strengthen its green bond prowess. Following the successful placement of a green Aussie-dollar denominated “kanga” bond in March this year (A$600m), KfW has placed another benchmark bond; this time in UK sterling. The £500m ($780m) green bond has a 15-year tenor and annual coupon of 1.625%. As with all KfWs green bonds, it’s backed by the German Government with an AAA rating. Barclays, HSBC and Royal Bank of Scotland were the lead underwriters of the deal.
UK investors dominated the allocations taking 72% of the deal and demonstrating the huge demand in the UK for sterling denominated green bonds. Asian investors took a further 11%, American investors 4% and the rest went to European investors. Asset managers (20%), Central Banks (15%) and Banks (65%) were the investor types represented in the deal. These include big names such as Alliance Trust AM, AP4, Barclays, Natlxis Asset Management, Northern trust AM London, Sarasin Investment UK, SCOR, Vanguard.
KfW’s green bonds are not only large in size, but also high-quality on the green credentials: CICERO provides a second opinion and all proceeds go towards renewable energy (mainly on-shore wind and solar) projects or assets. That’s pretty darn green!
Municipal green bonds
Another successful green bond from Swedish City Gothenburg for SEK1bn ($126.6m) receiving over SEK2bn of orders in just an hour! (6yr, 1.455%)
Since 2013 the City of Gothenburg has been issuing Green City Bonds very successfully to finance a range of its green projects. The latest deal shows that there is still a lot of demand for the Swedish city to continue it’s green bond issuance, with an order book double the issuance amount within an hour of opening for orders. Wow! The SEK1bn ($126.6m) green bond has a 6-year tenor and fixed coupon of 1.455%. Sole underwriter for the deal is SEB.
Investors in the deal include Alecta, AP2, AP3, AP4, KFW, Mirova and Storebrand. Overall the majority of the order book was pension fund investors (61%), asset managers (17%) and Banks (16%). Geographically the majority of investors were domestic Swedish investors with German investors accounting for 16% and Norwegian investors a further 15%.
Gothenburg is currently using proceeds for a series of green projects including an electric vehicle scheme, energy-from-waste project (biogas), sustainable housing, and sustainable water project.
Gothenburg still has flexibility to finance other eligible projects that meet its Green Bond Framework. This makes it easy for them to do repeat issuances, as they do not have to develop a new framework each time – and with such great green credentials it’s clear why investors are keen every time Gothenburg issues another green bond!
Unlabelled climate bonds
Huge Peruvian project bond for the Lima Metro Line ($1.15bn, 5.875%, 19.1yrs, BBB/Baa1/BBB)
When we think about green project bonds generally it’s solar and wind power projects that spring to mind, but it’s important to remember the other types of green infrastructure projects such as rail can also be refinanced through project bonds. The latest green project to issue an unlabelled green bond is Lima Metro.
The bond is backed by a large underground rail (metro) system construction project, which involves creating over 35km of tunnels and 35 subway stations in Lima, Peru. The project also includes the electrical and mechanical equipment for the rail and the rolling stock. This means the project has scale - great for bond markets that are seeking large liquid bonds.
Peru’s government, through the Ministry of Transport and Communications, is a guarantor of the payments. This guarantee helps make it an investment project bond with a credit rating of BBB.
The main Investors in the bond are asset managers and local investors, but insurance companies and banks also invested in the bond.
Great example of how to refinance a green infrastructure project in emerging markets – other cities should look to follow Lima’s excellent example.
Market Developments
A Green Municipal Bonds Playbook has been launched by the US Green City Bond Coalition to give guidance and encourage more issuance. The Playbook includes an introduction to the green bond market, a simple step-by-step guide for how to issue a Green Muni Bond and in-depth case studies covering the earlier green bond issuances from municipal utility DC Water and Massachusetts State. The Coalition is led by the Climate Bonds Initiative, NRDC, C40, CDP, Ceres and As You Sow. Check it out now!
According to Environmental Finance, Barclays and MSCI have opened up for consultation on their joint green bond index, adding to the indices already available in the market.
Green Bond Gossip
Three reasons to get super excited about the upcoming green bond from Washington State, US: Central Puget Sound Regional Transit Authority:
- It's dark green – all proceeds are going towards rail and bus rapid transit
- It’s a US municipal bond and it’s got a second review (from Sustainalytics)
- It’s big - over $700m!!!
We can’t wait to hear more about this one!
Rhone Island is also issuing a municipal green bond for its wastewater projects. The much smaller bond, at $61m, represents a continued trend of green municipal water bonds in the US.
Canadian Telecoms giant Teslus is set to issue an inaugural green bond; c$225m for green property.
TerraForm Global Operating a subsidiary of the SunEdison group announces an $810m green bond. Proceeds will be used for wind, solar and hydro projects.
Look out for more details on all these bonds – and more - next week!
