A first from France, more from Fabege, green finance from the G20, new Chinese listing on the LSX, China, Iberdrola, Goldwind, NAFIN, EIB; Mitsubishi, Entra, Nomura Research Institute, US Munis and plenty of green bond gossip!

A big boost for green finance and green bonds around the G20 (See 5 Big Green Bond Stories in 5 Days) & more offerings into the market.

Will we reach the big USD 100bn in green bond issuance for 2016?

That now depends on whether:

  • Corporates and banks pick up on the big green light on green finance  from the Hangzhou G20 summit
  • More state governments follow the lead of Victoria in issuing sub-sovereign green bonds
  • National governments the leadership from France in issuing national green bonds
  • Climate Week in New York spurs big investors to demand more green opportunities

Meanwhile, here’s our pick of the best green bond highlights from the last few weeks.

 

Global

First Chinese Green ‘covered bond’ to be issued in London by Bank of China

Climate Bonds broke this story on the 14th, and even though no formal announcement has yet been made, we think this is a pretty big deal in the green bond world.

The BoC is looking to issue a senior note that will be credit enhanced by the Chinese green bonds on its balance sheet. 

We understand that this issuance aligns directly with the Green Finance Study Group (GFSG) Synthesis Report presented to the G20 in Hangzhou.  

Also worth noting is the intention to list on London Stock Exchange.

For institutional investors, this kind of offering, listed in London, helps tick a number of green finance boxes.

We await further developments.

 

Corporate Bonds

Real estate company Fabege issues its second green bond for 2016 (SEK 460m, USD 54.5m)

Swedish listed property developer Fabege issued another green bond earlier this month. Proceeds from the 2 year bond will finance improvements in the company’s domestic property portfolio.

To be eligible, projects must be certified under either:

In addition, buildings must use 25% less energy than the Swedish national average and as required by domestic building codes and regulations.

The linking of an energy metric to the national average is an important step in ensuring GHG reductions and in keeping building performance in line with increasing national emissions targets. The bar essentially keeps getting higher as the national building stock improves.

Similarly, the Climate Bonds’ low carbon buildings criteria has performance targets that become more stringent over time, requiring buildings to be in the top 15% of their local market now with the goal of zero carbon emissions by 2050.

This time, the bond was issued via Nya Svensk Fastighets Finansiering (Nya SFF), a Swedish finance company co-owned by Fabege.  Nya SFF’s Green Bond framework received a second opinion from Cicero in 2015. CICERO also gave the bond a grading of Medium Green under its Shades of Green framework.  

Underwriters: Nordea, SEB and Swedbank.

 

China Three Gorges green bond for RMB 6bn (USD 899m)

The often controversial Chinese dam building company China Three Gorges Corporation (CTGC) has announced its debut green bond.

The company's issue, launched at the end of August, totalled RMB 6bn (USD 899m) which was split into two tranches of RMB 3.5bn (3-year term notes) and RMB 2.5bn (10-year).

The bonds were listed on the Shanghai Stock Exchange and EY undertook the external review.

OK, so those are the facts– now for the more tricky questions – do these bonds qualify under international definitions of what investors count as green? And what do we think?

Firstly – to be clear, these tranches do meet the eligibility criteria outlined in the Green Bond Endorsed Project Catalogue, from the Peoples Bank of China. This is what EY provided a review to check alignment with.

As far as international definitions – this is a different issue.

The proceeds will be used for constructions of three hydroelectric power plants: Xiluodu, Xiangjiaba and Wudongde which are not part of the Three Gorges projects but are all on the Jingsha River cascade (Upper Yangtze River) with designed installed capacity of 13.8GW, 6.4GW and 10.2GW respectively.

So they are big projects, very big – the first mega hydro projects we’ve seen included in a green bond.

International investor concerns around hydro are manifold – they include climate concerns, biodiversity loss, human resettlement and pollution.

From a climate perspective, the flooding of reservoirs when dams are built cause GHG (particularly methane) emissions as organic matter rots after flooding – these can often outweigh the benefits of hydro as a clean power source.

Moreover, the intricacies of methane production mean that emissions do not decrease over the life of the reservoir. For more info, read the Water Climate Bonds Standard discussion paper  (pps 45-47 on methane).

Studies tend to indicate that more methane is released from reservoirs in the tropics but recent evidence suggests that there is much more nuance than latitude alone and the role of storage capacity, design and operation can have important impacts.

In addition to the methane problems, there are issues with pollution and displacement which are not climate related, but still important to international investors. According to International Rivers, approximately 150,000 people were displaced during the construction of the original three dams.

The complexity involved in these types of highly controversial projects means that for the bonds to be included in our database, we would need a lot more comfort around project emissions and other adverse effects which, to date, the information provided at this stage doesn’t give us.

They will therefore not be included in our data but we intend to review further information as it becomes available.

Still – good news that China Three Gorges wants to demonstrate leadership on green issues! 

Underwriters: China Securities, CITIC Securities

FYI: We have a technical working group working on this complex issue of hydropower – for more information, see here

 

Mitsubishi UFJ Financial Group (MUFG) issues first green bonds for USD 500m

The first batch of bonds, worth USD 500m, was issued in September as part of a USD 3bn issuance program.

The proceeds from the 7-year bond will be allocated to the development, construction, operation or expansion of facilities for renewable energy generation – specifically investment in photovoltaic, solar thermal and wind energy projects.

All pretty easy to evaluate in climate terms, being very much in line with a low carbon economy (with the caveat that solar thermal power shouldn’t have more than 15% gas-fired backup).

The bond has received a second review from Sustainalytics.

Well done MUFG!

Underwriters: Citi, Morgan Stanley, MUFG, JP Morgan, Merrill Lynch Pierce Fenner & Smith, Barclays, BNP Paribas.

 

Iberdrola issues 3rd green bond for EUR 700m (USD 786m) green bond

This is the Spanish power utilities third foray into the green bond market with previous green bonds issued in 2014 and again in early 2016. As with the earlier green bonds, an external review was provided by Vigeo Eiris.

The proceeds of the green bond will be used to refinance wind energy projects located in the UK and owned by Scottish Power Renewables.

Underwriters: BBVA, Santander, Commerzbank, Credit Agricole CIB, Deutsche Bank, JP Morgan, Morgan Stanley & UBS.

If your Spanish is good you can read more here and here.

 

Nomura Research Institute (NRI) issues its inaugural green bond (JPY 10bn, USD 97.5m)

Nomura Research Institute (NRI)  last week issued a JPY 10bn green bond, with a 10-year tenor.

Vigeo Eiris provided the second opinion while the bond received an assessment of GA1 from Rating and Investment Information Inc. – a Japanese rating agency.

The bond will finance part of the ‘Yokohama Nomura Building’ project targeting low carbon and environmental certifications including CASBEE class S (excellent), LEED Gold, DBJ Green Building certification and SEGES.

LEED Gold and equivalent certifications show great ambition, well done!!

NRI will occupy the building from April 2017 and commits to reduce its GHG emission per employee by 9% by FY2017 compared with their other current main office buildings.

The framework indicates that the 17-floor building project is fully integrated into the Yokohama Smart City Project, which has a CO2 reduction target of 30% by 2025.

NRI is a business consultancy and IT services firm which was spun off from Nomura Holdings. It is an affiliate of Nomura Holdings (which owns 30% of shares).  

Amazingly, despite the huge size of Japan’s bond market, this bond and the MUFG bond are only the second and third corporate green bonds we’ve seen issued by a Japanese corporate issuer (not including Toyota who issued their bonds under their US branch).

Is this the start of a trend? Will green bonds soon be… turning Japanese (cue cheesy 80’s music– my apologies)?

Underwriters: Nomura, Mitsubishi UFJ Morgan Stanley, Mizuho, SMBC Nikko.

 

Another green bond from energy player XINJIANG GOLDWIND Science & Technology (CNY 500m, USD 74.9m)

Their first issuance was in 2015 and was lauded by Climate Bonds as a sign that China was on the move. Well, look at China now!

All proceeds are for wind power.

Underwriters: China Development Bank and Industrial Bank Co.

 

Berlin Hyp’s first senior unsecured green bond just out EUR 500m (USD 559m)

After successful green pfandbrief (covered bonds) issued in 2015 and 2016, Green Bond Pioneer Award Winner Berlin Hyp have just come to the market again with their first senior unsecured green bond which was 2.4x oversubscribed.

As with the pfandbrief, the proceeds will be used to refinance for loans green buildings.

The Green Bond Framework outlines detailed energy consumption hurdles that each building must meet in order to be included. In addition to these hurdles, the minimum certification required is LEED Silver or BREEAM Good. Berlin Hyp will also strive to invest the amount equivalent to the bond size in new green buildings.

Oekom research provided the second review on the bond.

According to the press release, more than half of the bond investments came from domestic market actors followed by Austrian and Swiss (13%), 11% from British and finally 9% from Scandinavian investors. 41% of the issue went to sustainable investors. It also attracted 35 new investors.

Underwriters: ABN Amro, Commerzbank, Credit Agricole, J.P. Morgan and LBBW.

 

Sovereigns, Supranationals and Agencies

EIB enters the Canadian maple bond market with CAD 500m (USD 378m) issuance

The European Investment Bank issued another climate awareness bond (their green bond equivalent) last week– this time in Canadian dollars.

The new ‘maple bond’ is part of the EIB’s climate awareness bond program that has seen over USD 17bn of climate awareness bonds in eleven different currencies since 2007.

The bond has a 5-year term and was issued on the Luxembourg Stock Exchange.

We’d like to see a lot more development banks following the lead that EIB started in 2007. It’s now 2016, nearly 10 years on.

Plenty of time for other institutions to have a good look and undertake some due diligence on an initial green bond issuance.

Underwriters: Bank of Montreal, HSBC, RBC, Scotiabank, Toronto Dominion Bank

 

Nacional Financiera (NAFIN) new bond out – MXN 2bn (USD 108m)

Mexico’s development bank issues its 2nd green bond –it’s the first green bond issued in Pesos by a local issuer.

Proceeds will finance onshore wind projects and small run-of-river hydro power plants. These are small scale 50MW hydro projects. Unlike the large scale ventures (Three Gorges for example) run-of-river projects don’t have large reservoirs that can generate emissions. In addition, other investor concerns such the displacement of people are not relevant.

The bond received a second review from Sustainalytics.

Underwriters: Accival and BBVA Bancomer.

 

Municipals

Arizona Board of Regents’ USD 135m green bond

The proceeds will go towards the financing of the Biodesign C and the Student Pavilion buildings at the university. Both buildings are designed to meet LEED Silver certification (encompassing water efficiency measures, energy recovery systems, low-emitting materials and energy-efficient lighting).

You know we love ambition – so we’re always pushing for Gold (or equivalent) certification when it comes to buildings but its excellent to see so many universities pushing the green bond market further.

Prospectus here. : http://emma.msrb.org/ES816567-ES640838-ES1036118.pdf

 

Green bond issued for New York State Environmental Facilities Corp USD 133.7m

It will finance or refinance clean water projects via providing financial assistance to eligible recipients in the State of New York. This is the third time they have come to the green bond market since 2014.

The prospectus is here.

 

Social bonds

Japan International Cooperation Agency issues social bond (JPY 35bn)

It marks the first time that a Japanese issuer has offered bonds reflecting features of Social Bonds, as defined by the International Capital Market Association (ICMA), in the Tokyo market.

Japan Research Institute has provided an independent second opinion – it is here to read in Japanese to read, if yours is good.  

 

Green Bonds News and Gossip

 

Norwegian Real Estate Entra to issue inaugural green bond this week (NOK 1bn, USD 120.7m) for green buildings. See here for Entra’s green projects pipeline examples.

 

Port of Los Angeles to issue its inaugural green bond (USD 35.2m): Proceeds will refinance debt incurred from the construction of: parkland, green buildings and water projects

 

Renovate America’s 8th Securitised PACE Bond closing today (USD 320.243m) – Second opinion from Sustainalytics: here

 

Bank of Jiangsu (江苏银行) plans green bonds issue, to boost financial leasing JV's capital

Reuters report is here.

 

PBoC and six other central regulators jointly issued “Guidelines for Establishing the Green Financial System”

The English version of the announcement is here.

This is a significant development; we’ll have some more to say on it in a later Blog.

 

PBOC may issue low-interest loans to promote green finance

This is further announcement in the series that China has been making around the G20. Read the Reuters reports here or here or watch the CCTV news item here.

 

National Bank of Abu Dhabi postpones green bond

This week NBAD withdrew their proposed green bond from the market. Different sources are giving different reasons for this, but we’ve heard that the postponement was due to current market conditions, particularly the poor performance of QNB bonds. It's a shame as this would have been a first for the region BUT good news is it was not from lack of demand and we'll update you when they return. 

 

Ooh la la - France to issue first ever green sovereign bonds starting 2017. Nous sommes impatients de les accueillir!

This is big news, that received lots of well deserved coverage. The official announcement is here.

 

Mexico City Airport Trust is on the road (get it?) with a green bond. Proceeds will go to energy efficiency improvements at the airport as well as improved waste management and adaptation. More analysis to come when it’s out…

 

MuniFin Plans Finland’s First Green Bond: Municipality Finance is planning a USD 500m green bond in the first sale of the securities from Finland.  https://www.munifin.fi/investors/green-bonds

 

BMCE Bank (Banque Marocaine du Commerce Extérieur) wants to issue green bonds

Article in French: http://www.flm.ma/news.php?id=29435#.V9_WLojhDIU

 

Freddie Mac offers discounted pricing for owners of greener properties!

http://www.freddiemac.com/multifamily/product/green-advantage.html

 

US & China ratify Paris Climate Change Agreement see here.

Thanks President Obama, when it comes to climate you’re still the one.

 

Green Finance firmly on the international agenda and Green bonds get a specific mention  in the G20 Communique here.

Thanks President Xi Jinping for putting green finance on the G20 plate in 2015 and keeping up post COP21 momentum.

 

That’s a lot of movement in the last month.  Here at CBI HQ we’re sharing a few smiles.

 

And for those of you who made to the end of the Blog, a little extra surprise.

Our preliminary figures are showing a new milestone.

Today we officially edged over the halfway mark for our green bond total estimate for 2016. USD 51bn in total cumulative green bond issuance since January!

We’re running our numbers again, and we’d still be happy even if we were out by a couple of million.

 

Till next time,

The Markets Team (Bridget, Camille, Alan and Basile)

 

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