Development Bank green bonds
IFC issued green masala bond for INR 3.15bn ($49.4m) (5-yr, 6.15%, AAA) with proceeds used to invest in Yes bank’s domestic green bond
The latest green bond from IFC (the private sector focused part of the World Bank Group) is a so-called Masala bond, an Indian Rupee denominated bond issued in the overseas markets. The issuance totalled INR 3.15bn ($49.2m), with 5-year tenor and coupon of 6.45%. This is the first green Masala bond in the market, and it is listed on the London Stock Exchange, where earlier IFC green bond are also listed, including its pioneering RMB-denominated green bond issued in June last year.
But the really interesting twist with this rupee deal from seasoned green bond issuer IFC is that proceeds from its green bond will go in full to invest in the latest Yes Bank green bond issuance (see below for details). Yes Bank’s bond was a private placement deal with IFC as the sole investor.
This mix of demonstration issuance and strategic investment from a development bank offers a brilliant example of how development banks can use their AAA rating to raise cheap funds from mainstream institutional investors, and pass on the lower cost of capital to an emerging market domestic issuer who would otherwise have to pay a lot more for their capital. Essentially what IFC has done has de-risked Yes Bank’s green bond investment for the mainstream institutional investors, which is exactly what development banks need to do to make the massive green investments needed in emerging economies attractive in the international markets. Bravo IFC – we hope others will follow your lead!
EBRD issues a small green bond in Russian Rubles through private placement (RUB 60m ($0.92m), 3yr, 8.5%)
Repeat issuer European Bank of Reconstruction and Development (EBRD) issues a RUB 60m ($0.92m) green bond to finance its eligible green projects. The latest green bond has a 3-year tenor and semi-annual coupon of 8.5%. Credit Agricole CIB was the sole underwriter for the deal.
Corporate green bonds
India’s Yes Bank returns to the green bond market with an INR 3.15bn ($49.2m) green bond private placement for sole investor IFC (10 yr, unknown coupon and rating)
Indian commercial bank Yes Bank has announced a second green bond for INR 3.15bn (US$49.2m). This follows its exciting inaugural green issuance in February this year, the first in the Indian market. This time, Yes Bank issued the green bond as a private placement with IFC as the sole investor (see the story above about IFC’s green masala bond). The tenor is 10 years, but the coupon and rating of the deal are unknown - though the Indian rating agencies ICRA and CARE give Yes Bank AA+.
Proceeds from the bond will be used for Yes Bank’s lending portfolios to renewable energy, which includes solar, wind, biomass and hydropower. Renewable energy lending is a part of the bank’s strategy; Yes Bank has committed to the Indian government to fund 5000MW of renewable energy projects by 2020. As more financial institutions follow the lead, driven by government pressure, there is a lot of potential to see a flurry of green bonds issued in India to refinance this lending.
Similar to Yes Bank’s first bond, there is no second opinion or certification of the green credentials of the bond. But we do get some indirect assurance: as the IFC’s green bond is used to finance its investment in this Yes Bank bond, we know Yes Bank’s projects will need to meet the IFC green bond eligibility criteria - which has a second opinion by CICERO. Nice bonus from IFC’s interesting structure that it leverages the development banks’ expertise in assessing the green credentials to other emerging market green bonds.
French power company, AKUO Energy, issues a EUR 34m ($38.3m) green bond (5yr, 5.5%, no rating)
French power company, AKUO Energy, issues a EUR 34m ($38.3m) green bond as private placement, with 5-year tenor and 5.5% coupon. As is common with private placements, there was no rating on the bond. This makes it the first independent power corporate to issuance a green bond in France.
The proceeds of the bond will be used for renewable energy projects, but no more details were disclosed. We do get an indication of what we can expect the money to go to by looking at the current mix of renewables at the company level. The vast majority comes from wind energy (79%), followed by solar (19%) and biomass (5%).
Yieldco TerraForm Global issues a whopping $810m green bond (7 years, 9.75%, B2/B+)
TerraForm Global Operating has issued an $810m green bond, with 7-year tenor, 9.75% coupon and ratings of B2 and B+ from Moodys and S&P respectively. TerraForm Global is a recent yieldco spin off (IPO last month) of SunEdison group (have a look here if the yieldco concept is new to you).
Terraform Global owns and operates renewable energy assets - solar, wind and hydro - in emerging markets, in the following locations:
- Solar: China, India, South Africa, Honduras, Uruguay, Malaysia and Thailand.
- Hydro: 6 projects in Peru (for 336MW aggregate capacity), as well as 3 small operational hydro projects in Brazil (aggregate capacity of 42MW).
- Wind projects: China, Brazil, South Africa, India, Honduras, Costa Rica and Nicaragua.
The emerging market focus sets Terraform Global apart from its sister-yieldco Terraform Power Operating, which has so far issued 3 bonds for a total of $1.25bn, but who only has one emerging market project, in Chile. Their renewable energy power plants are predominately in the US, with some assets in Canada and UK.
Terraform is really showing the potential for yieldcos to issue green bonds to finance renewable energy in a wide range of countries – way to go!
Municipal green bonds
Largest-ever green muni bond issued by Sound Transit Authority in Washington State for $942m financing low-carbon transport with fabulous green credentials AND it has a Sustainalytics second review!
Central Puget Sound Regional Transit Authority issues its first green bond for a huge $942m, this is way bigger than any other municipal bond we’ve seen so far (Transport for London is the second biggest at £400m/$700m).
Sound Transit’s green bond deal is split across three tranches, a common structure in the US municipal market. The biggest tranche is for $792.8m, issued as a series of smaller bonds with 4% or 5% coupons and tenors between 3 and 25 years. The other two $75m tranches are longer dated with 30-year tenor. JP Morgan was the lead underwriter for the deal.
But it’s not just the size that gets us really excited about this bond: the green credentials of this bond are fabulous, and Sound Transit chose to get a second review from Sustainalytics to prove it. Great to see the concept of an independent review being reintroduced in the US green muni market – until now, DC Water’s green muni bond from July 2014 was the only one of the many US green muni bonds that had gotten a second review. The second opinion gives a detailed, transparent summary of the projects to be financed with the green bond and all are ambitious low-carbon transport projects. Let’s take a deeper look at the details!
The bulk of the green bond proceeds will go to rail projects in and around the Seattle, Tacoma and the Puget Sound area, focusing on commuter rail links to the city and to the airport. Providing this low-carbon mass transit option facilitates a modal shift away from high-emission, road-based transport.
But to ensure that people actually change their mode of transport, it has to be easy or accessible for people to use the rail lines. We’re pleased to see Sound Transit has thought about this too, by also using their green bond to fund pedestrian bridges to easily access the rail lines, bicycle parking and car parking management system by stations (giving preference to those commuters sharing vehicles in park and ride).
A new StreetCar (tram) system planned for the city of Seattle will also be financed through the green bond. Tram systems are a great way of providing a mass rapid transit service similar to rail without the same scale of infrastructure cost.
And it doesn’t stop there. Sound Transit’s green bond will also use proceeds to build infrastructure to develop its bus rapid transit (BRT) system, by allowing buses to access the “fast track” lanes that exist in Washington State to give buses (and cars with more than 2 passengers) a dedicated lane and therefore quicker access to cities. New hybrid buses will also be purchased with green bond proceeds lowering the emissions profile of Sound Transit’s bus fleet.
All in all, a very successful first for Sound Transit, as they have achieved their three main objectives in issuing the green bond: attracting new investors, promoting the organization’s excellent sustainability record and helping deepen the green bond market. It’s a brilliant showcase of what can be achieved in the green bond market by municipalities and cities looking to finance a range of urban low-carbon infrastructure. Great work!
Joint bookrunners were: J.P. Morgan; BofA Merrill Lynch; Citigroup; Goldman, Sachs and Co.; RBC Capital Markets; and Wells Fargo Securities.
Green Asset Backed Securities (ABS)
SolarCity, the US largest solar developer, comes to the green bond market yet again with $123.5m of solar asset-backed securities. The 7-year tenor green ABS is split across two different ranking tranches; the larger $103m senior A-rated tranche has a 4.18% coupon and the smaller $20m junior tranche, rated BBB, with a 5.58% coupon. Great to see solar-backed ABS moving up the credit ratings!
SolarCity has been a pioneering company in the solar securitisation space; in November 2013, they were the first corporate to issue a fully solar-backed ABS, and several more deals followed in 2014.
This latest deal from SolarCity adds to other recent green ABS deals, with July seeing green ABS issuances from both RenewFund and Toyota.
World Bank launches their impact report showing the flows of green proceeds to projects by category and region. In total, the World Bank has issued 100 green bonds in 18 currencies, adding up to the equivalent of US$8.4bn.
The impact report tells us details of all 77 projects funded by the green bonds, covering a short description; the amount allocated and expected or achieved outcomes. The majority of these projects are in the Asia Pacific and Latin America & Caribbean regions, and include renewable energy and energy efficiency, but also low-carbon transport – for example, urban transit financing for rail and increased use of waterways in Sao Paulo.
The report shows the breadth of projects financed by the World Bank’s green bond programme.
Green Bond Gossip
This week there is a flurry of gossip of upcoming deals. Here are some teasers – we’ll come back to you with more details on each deal once they have been issued and priced.
HSBC plans to issue green bonds in India through is local branch, HSBC India. The bank is in the process of working with the relevant authorities in India on its green bond issuance, but the talks are still in a nascent stage, so no word on the size of the potential green bond offering yet.
Hannon Armstrong announced it will issue another round of green asset-backed securities (it calls them Sustainable Yield Bonds), this time for $125m and 25-year tenor. As its previous issuances of green asset-backed securities, they will be backed by renewable energy and energy efficiency assets. The ABS offering will be offered by an indirect subsidiary of Hannon Armstrong.
The Colorado State University System has issued $171 million in bonds to fund building improvements and construction on college campuses. This bond package includes the university system’s first green bonds to finance a new medical center expected to receive at the minimum a LEED silver rating.
Canadian Telecoms giant Teslus is also set to issue to finance low-carbon buildings, with an inaugural green bond planned for $225m.
Rhode Island is coming to market with a small municipal green bond for its wastewater projects. The $61m bond continues the trend of green municipal water bonds in the US.
New York State Environmental Facilities Corporation is planning to issue a $111.9m green revenue bond.
Aboitiz Power is to offer the first green bond in the Philippines, with the Asian Development Bank providing a partial guarantee for the bond with is planned for Ps10.7bn (US$273.2m) with 10-year tenor. Proceeds will be used for geothermal power, specifically Aboitiz Power’s Tiwi and Makban geothermal power complexes. The bond will be issued through AP Renewables, a wholly owned subsidiary of Aboitiz Power that operates the complexes. Exciting development for green bonds in Asia – stay tuned for more coverage on this one next week.