India’s 1st green corp bond: CLP (INR6bn) / NIB EUR500m / New York Enviro Fund $376.5m / Colorado State Uni $42.1m @ClimateBonds
This week’s top news is the first green corporate bond in India from power company CLP – an important milestone. We’ve also seen: a benchmark EUR-issuance from repeat issuer Nordic Investment Bank; New York State Environment Agency with green bond for water; and Colorado State University issuing for green buildings. GIP infrastructure fund issued their first green bond and an unlabelled climate bond was also issued to finance offshore wind. And as always, we’ve got some gossip.
Green corporate bonds
CLP Wind Farms India issues the country’s first corporate (non-bank) green bond INR6bn (US$90.3m), 3-5 years, 9.15%, AA
Indian power company CLP Wind Farms have issued INR 6 billion (US$90.3m) of green bonds. This is the first corporate (non-bank) green bond issuance in India - in fact, in all of South Asia – following Yes Bank and India’s export-import bank who have also issued in the Indian market this year.
CLP’s bond was issued as a private placement in three equally sized tranches of INR 2bn with tenor of 3, 4 and 5 years and coupon of 9.15%. All the tranches were AA-rated, and underwriters were HSBC, Standard Chartered and IDFC Securities. Investors were mainly Indian mutual funds.
Proceeds will be used for both capex and refinancing of wind assets. CLP is the largest wind power developer in India with a committed pipeline of 1,000MW of wind energy assets across 6 states in India.
CLP Wind Farms did not get a second review or certification on the green credentials of the assets, but given that they are wind assets only (with a breakdown of the specific assets provided on their website), we can be reasonably confident about the assets base.
CLP Wind Farms is the renewable energy arm of power company CLP India (a subsidiary of Hong-Kong based CLP Holdings). Now, CLP India also has coal and gas assets, but as the proceeds are ring-fenced to only go to the fully wind focused CLP Wind Farms that is fine by us. Provided the necessary ring fencing is there for use of proceeds green bonds can be a superb way to finance this shift to renewables. Of course independent review would be best; after a round of meetings in Delhi and Mumbai last week I think this will be the next development in India.
The question for Indian Rupee issuers has been “will there be demand in the local market”. It’s not clear from CLP’s report that the mutuals investing in their bond were after the green.
But last week in Delhi at a FICCI green bonds conference I heard something that made me very excited. On a panel after mine, India Life Insurance Corporation’s Executive Director, P.H. Kutumbe, said: “we’re keen on supporting green bonds”. Whoa! This is no trivial statement, as LIC has INR15 lakh crore (US$230bn) of assets under management.
So it looks like the Indian situation could shape up to be the same as European and the US: we just need product.
Luckily, I think we may be able to see product. While in Delhi and Mumbai I had conversations with a host of companies and banks who are now looking at the possibility of issuing – about 50/50 domestic vs international. That will certainly test the proposition that demand is just under the surface.
In the meantime, bravo CLP for being the first corporate green bond issuer in South Asia!
Green development bank bonds
NIB issue first green EUR denominated bond (EUR500m ($565.5m), 7-year, 0.375%, AAA)
The Nordic Investment Bank (NIB) has issued their first Euro-denominated green bond (they dub them “environmental bonds”) for EUR500m ($565.5m). The bonds have 7-year tenor, coupon of 0.375% and is rated AAA. Underwriters were HSBC, Bank of America Merrill Lynch and Credit Agricole CIB.
NIB is a repeat issuer with many green bonds issued in several currencies since they established their green bond framework in 2011.
Investor demand was strong, with the 500m deal receiving 650m of orders from 36 different investors, with 70% of the orders coming from investors with a green focus. The bond provided NIB with investor diversification, with close to half of the investors being first-time buyers of NIB’s bonds. In terms of investor types, asset managers, pension funds and insurance companies were the largest group of buyers, followed by banks (33%) and central banks and official institutions (16%).
The proceeds from the green bonds are used for a range of green assets. NIB keeps an up-to-date split of financing by category on their website (along with emission savings data). So far, renewable energy accounts for 62%, followed by energy efficiency 11%, waste management 10%, green buildings 7%, public transport 6% and wastewater treatment 3%. NIB has a second review from CICERO on the green credentials.
Great to see a long-time issuer coming back to market!
Green municipal bonds
New York State Environment Agency issues US$376.5m of green bonds for water projects (3.25-5%, 3-15 years, AAA)
New York State Environment Agency has issued US$367.5m of green revenue bonds. The bonds are issued in 15 tranches, with coupon ranging from 3.25-5% for tenors of 3-15 years. The bonds were rated AAA, and CITI was lead underwriter for the deal.
The proceeds will be distributed to local governments, state public authorities and specified private entities to finance or refinance clean water and drinking water projects that fall under the State’s water pollution program. No second review was provided on the green credentials, but the projects have to adhere to certain environmental criteria set out by the State.
We’re happy to see that they offer a breakdown of the projects expected to be funded, the amount of offered bond proceeds expected to be provided for each project and the actual or expected completion date of each project. They will report semi-annually on the use of proceeds.
It would be good to have more information on how the projects are accounting for climate change adaptation and mitigation to provide investors with more information on the climate credentials of the projects. While some of the proposed eligible projects can be seen as climate resilience projects, for example sewer overflow and emergency generator projects, we’d like to see more on how climate change is explicitly taken into account in these projects.
Colorado State University comes to market with $42.1m of green bonds to finance green buildings (5%, 1-15 year, AA/Aa2)
Colorado State University comes to market with $42.1m of green revenue bonds to finance green buildings. The bonds were issued in 11 tranches, with coupon of 5%, tenors of 1-15 years and rating of AA/Aa2. Morgan Stanley was underwriter of the deal.
Proceeds will be used for construction of a medical centre building that is expected to achieve a minimum level of silver under the green building certification scheme LEED, with LEED Gold as the targeted level. The prospectus sets out that the building will reduce emissions by using renewable energy and various energy efficiency measures, as well as adopting water efficiency strategies.
That sounds promising, but it would be good to know more details about the level of emission savings they expect. Considering the long life times of newly constructed buildings, we need the emission reductions to be ambitious – see the low-carbon building criteria under than Climate Bonds Standards for details of what the scientific experts consider to be the required levels of emission reduction.
The green bonds do not come with a second review of the green credentials, although Colorado State University will provide annual updates on the use of proceeds and the level of LEED certification achieved.
Unlabelled climate bonds
West of Duddon Sands Transmission Plc issues GBP254.8m ($392m) of unlabelled climate bonds, credit enhanced by the EU Project Bond Initiative (3.446%, 19 years, A3)
West of Duddon Sands Transmission Plc (WoDS) issued GBP254.8m ($392m) of bonds to finance the acquisition of wind energy transmission lines with coupon of 3.446% and 19 year tenor. It wasn’t labeled green and didn’t promise reporting, but the assets are definitely green; we call these “unlabeled” climate bonds. The bond was credit enhanced by the EU Project Bond Initiative, giving a one-notch credit rating uplift to be rated A3 by Moody’s.
Proceeds will be used to finance the acquisition of offshore transmission assets that connect a 389MW wind farm off the coast of the UK to the onshore transmission network.
Great to see another climate-aligned bond credit enhanced under the EU Project Bond Initiative! The joint initiative from the European Commission and the European Investment Bank aims to leverage more private capital into infrastructure projects in Europe by providing subordinated debt, reducing the risk for private sector investors; we’re big fans!
So far, the Project Bond Initiative has funded more high-carbon assets - frankly the EIB should not be touching these, give their much-vaunted appreciation of climate risk - than climate-aligned projects, so we’re happy to see another wind project in the mix. The Initiative has previously provided credit enhancement to the UK Greater Gabbard offshore wind transmission project.
At the green bond conference in Delhi last week, the role of the public sector in supporting green bonds going forward was a key topic of discussion. Ulrik Ross, UK's Managing Director and Global Head of Public Sector & Sustainable Financing at HSBC, said: "HSBC believes that scale in the green bond market can only be reached by introducing government sponsored incentive structures for green bonds … and we believe India has the ability to do so." We couldn’t agree more!
You’ll hear more about that in the Executive Briefing for the public sector on how to scale green bond markets that we’re launching on Monday in Sao Paulo.
More sector-criteria under the Climate Bonds Standards are being rolled out into the market. Criteria for Agriculture, Forestry and Other Land Use (AFLOU) were launched for public consultation in Zurich on September 9. Criteria for Geothermal, were also launched for public consultation recently. We’d love your feedback!
The benefits to issuers of issuing green bonds go beyond investor diversification and marketing, which are typically the primary goals for issuers going green. This week, Ile de France, a repeat green bond issuer, revealed to Environmental Finance that additional benefits that were equally important were closer internal collaboration between the finance and sustainability departments, motivation for staff and improving dialogue with investors. This echoes the experiences other green bond issuers, such as the City of Gothenburg, have shared with us previously.
Green Bond Gossip
Global Infrastructure Partners (GIP), an infrastructure fund with global reach, is issuing an investment-grade GBP556m (US$623m) green bond. The bond will be a private placement issuance to a consortium of insurance companies in Germany, with Talanx, Germany’s third largest insurance company, taking a cornerstone investor role. Proceeds will be used to finance the acquisition of 50% of an offshore wind farm owned by DONG Energy. The deal is expected to close by end of the month – we’ll come back with more details then.
Danish wind turbine manufacturer LM Group Holding A/S have hired Nordea Bank to arrange discussions with investors on issuing a 5-year green bond, according to Bloomberg.