Green bond market report: 1st CBI certified Asian GB from HFE and more

 

climatebonds

Green bond market report: 1st CBI certified Asian GB frm HFE; Repeat GB’s frm KEXIM ($400m), Mass Clean Water $207m, Ontario CA$750m($537m)& OPIC $14m. Plus US Muni GB’s frm San Diego $100m & Uni Texas $206m. Plenty of green gossip too!

The first certified green bond in Asia, a flurry of municipal green bonds from three corners of the US: Texas (University of Texas), Massachusetts (Mass Clean Water) and California (San Diego) and repeat green issuances from Korea’s KEXIM, Canada’s Province of Ontario and the US governments’ OPIC. Plus a first time green issuance from New York’s MTA this week rounded of a busy start to the month.

 

Corporate green bond

India’s Hero Future Energies (HFE) issues INR 3bn (USD 44m) Climate Bonds Certified green bond for wind projects (3 and 6 yrs, 0%, A)

India’s Hero Future Energies (HFE) issued an INR 3bn (USD 44m) green bond – the first ever certified green bond from Asia. The private placement is rated A by ICRA and split into three tranches with maturities of 3 and 6 years. Instead of an annual or semi-annual fixed rate coupon the bond offers a 10.75% annual compounded interest rate that the bondholder receives when the bond matures. Trust Investment Advisors Private Ltd is the lead underwriter in the deal.

The proceeds from the fund raised will be invested in wind power projects in the states of Madhya Pradesh, Telangana and Andhra Pradesh that have a cumulative installed capacity of 521.5 MW. This includes both the construction of wind farms and supporting infrastructure.

The Climate Bonds Initiative issued  certification under the Climate Bonds Standard. . Approved verifier, KPMG, confirmed that the green credentials of the bond comply with the Standard.

For any new readers – third party certification against the Climate Bonds Standard covers both the processes to manage, allocate, and report on proceeds (aligning with the green bond principles) and the green credentials of the assets funded. Detailed criteria are set out in the sector specific eligibility criterion  developed by leading industry, scientific and technical experts.

For HFE, this means its processes comply with the Climate Bonds Standard and the funded assets are in line with the Wind Energy criteria. All confirmed by an independent third party, KPMG.

 

Municipal, City & Province green bond

First time issuer San Diego Unified School District Issues $100m of green bonds for its green modernisation projects for high school buildings and solar energy projects (between 10 and 29 yrs, 3% to 5%, AAA)

California is quickly becoming one of the top states for green bond issuances. The latest green bond to come out of the golden state is the San Diego Unified School District $100 million green bond, announced in November and closed last month.

The green bond was issued in 12 tranches with maturities between 10 and 29 years, coupons ranging between 3% and 5%, and ratings of AAA by Fitch, Aa2 by Moody’s, AA+ by KBRA. Citigroup Global Markets Inc. was the lead underwriter for the transaction.

~Proceeds from the bonds will be used to implement renewable energy and green modernisation schemes for green buildings. The renewable energy projects are solar panels that will be installed in fields and on car-park roofs. The green modernisation scheme includes energy efficiency, water use efficiency, pollution reduction, improved resilience to climate change, and implementation of “reduce, reuse, recycle” practices.

Next time round it would be good to see San Diego take the lead from DC Water, Puget Sound and now MTA and obtain  an independent review or at a minimum leverage established standards (such as LEED or Green Star) as a proxy for its modernisation of green buildings.

 

Massachusetts Clean Water Trust returns to the green bond market with issuing a $207m green bond for eligible sustainable water projects (1 to 24 yrs, 4% or 5%, AAA)

Massachusetts Clean Water Trust (MCWT) has issued a $207m green bond in 24 tranches with maturities between 1 and 24 years, coupons ranging between 4% and 5%, and ratings of AAA by Fitch, Aaa by Moody’s, AA+ by S&P. Bank of America Merrill Lynch acted as the lead underwriter for the transaction.

Proceeds from the bonds will be used to finance wastewater and drinking water infrastructure projects. These projects include the water treatment facility upgrades in Great Barrington for phosphorus and nitrogen removal improvement, and water storage infrastructure in Stoneham with the potential to increase storage by 16 to 20 million gallons.

Determining how “sustainable” a water project is can be tough. When we brought together industry experts to discuss a water standard for the bond market the final outcome was that sustainable water projects should be considering the effects of climate change as part of any water infrastructure investment strategy. Climate adaptation and resilience is therefore the strongest focus of the standard although there is also scope for mitigation projects.

So far almost all US municipal green water bonds provide little information on the green benefits of the projects financing.  In the future it would be good to see more of these bond categories providing detail on their climate mitigation or adaptation qualities.

Similar to the San Diego green bond, it would be great to see an independent review next time round from MCWT.

In terms of reporting MCWT has already reported on its earlier green bond (Series 18) providing extensive detail on the allocation of proceeds. Fantastic work!

 

First Texan green bond issued by University of Texas – $206m with proceeds financing green buildings (between 10 and 30 yrs, 2.5% or 5%, AAA)

Board of Regents of the University of Texas has issued a $206m green bond with maturities between 10 and 30 years, coupons ranging from 2.5% to 5%, and ratings of AAA by Fitch, Aaa by Moody’s, AA+ by S&P. Bank of America Merrill Lynch was the lead underwriter for the transaction.

Proceeds from the bonds will be used to finance green buildings including the construction of three academic buildings, a residential building capable of housing 600 students at its Dallas campus and a new Medical School at its Austin Campus. All of the projects are expected to achieve a minimum level of LEED silver certification.

Qualifying buildings as green based on LEED certification is becoming increasingly common in the US municipal green bonds space. Since these bonds tend not to have an second review having an independent certification for assets is a step up. Arizona State, Massachusetts State and University of Virginia all leveraged LEED in this way.

It’s important to note that Texas State’s eligible buildings have not yet obtained the LEED certificate – so it’s critical that these commitments are reported on to confirm when the buildings achieve LEED silver.

We’ve previously commented on the alignment of the lower levels of LEED with Climate and it’s important to remember that ideally we would see green buildings qualified as green by annual energy efficiency performance against a local baseline. Check out our low carbon buildings eligibility criteria for more details.

 

Province of Ontario issues its second green bond (CA$750M ($537m), 7 yrs, 1.95%, AA-)

The Province of Ontario issues its second green bond this time for CA$750 ($537m), which is an additional CA$250m compared with its inaugural issuance of CA$500m from 2014.

This latest green bond has a 7 year tenor and fixed annual coupon of 1.95%. The deal is rated AA- by Fitch, Aa2 by Moody’s, A+ by S&P. BMO Capital Markets, HSBC Canada, Bank of America Merrill Lynch, RBC Capital Markets and TD Securities were the joint lead managers of the books. Sherman and Sterling were the legal advisors to the deal.

Over 50 investors participated in the green bond deal. Overall specialist green and responsible investors represent 70% of order book demonstrating the appetite for Canadian Dollar green bonds.

CICERO provides a second review on Ontario’s green bond framework. The framework allows proceeds to be used for a range of projects including low carbon transportation, green buildings, renewable energy, sustainable forestry, agriculture and land use, and climate adaptation projects.

Similar to its first green bond, Ontario already has specific projects lined up to be financed by this green bond. These projects include rail infrastructure projects such as the Eglinton Crosstown light rail line (also financed by its first green bond) and GO Transit Regional Express Rail both located in Toronto. Other projects to be financed by green bond proceeds include the green buildings aiming to achieve LEED Gold or Silver certification and the vivaNext Bus Rapid Transit project in York region.

Great work Ontario!

(For more details on the Canadian green and climate bond market check out our Canada report – written in partnership with Sustainable Prosperity and HSBC)

 

Development Bank

Three years after its inaugural green bond Export-Import Bank of Korea’s (KEXIM) returns to green bond market with a $400m green bond (5 yrs, 2.125%, AA-)

Following its inaugural green bond issuance in 2013, Export-Import Bank of Korea (KEXIM) is now returning to the green bond market and issuing a $400m green bond.

The green bond has a tenor of 5 years, coupon of 2.125%, and ratings of AA- by Fitch, and Aa2 by Moody’s. Bank of America Merrill Lynch and Credit Agricole were the joint lead underwriters for the transaction.

Back in 2013, CICERO evaluated KEXIM’s procedure and framework for selecting eligible projects. The latest green bond is issued under the same green bond framework.

KEXIM defines a project as green if it meets one of the following criteria:

  • Adheres with two Korean laws:

o Act on Low Carbon and Green Growth

o Act on the Promotion of the Development, Use and Diffusion of New and Renewable Energy

To better understand what this all means in practice we took a look at KEXIMs annual reporting for its 2013 green issue. KEXIM has released two newsletters providing the breakdown of use of proceeds by geography and sector. The majority of proceeds are used for renewables (23%), energy efficiency (32%), and environment-related industries (32%). KEXIM also provides commentary on a selection of projects including larger hydroelectric power projects (in Pakistan, Indonesia, and the Philippines), wastewater treatment project (Bahrain), and waste to energy project for a steel power plant in Indonesia .

For this green bond KEXIM have noted that some of the proceeds will finance the Patrind hydro project, a run-of-river hydropower plant in Pakistan, which has been verified as compliant with CDM.

Welcome back KEXIM!

 

Overseas Private Investment Corporation Issues two green guarantees ($9.1m & $5m, 9.5 yrs and 18 yrs, floating rates, NA)

US government body OPIC issued two green guarantees ($9.1m & $5m) with maturities of 9.5 years and 18 years respectively, floating rates, and no rating. Bank of America Merrill Lynch was the lead underwriter for the transaction.

Both green guarantees are backed by wind power projects; one is backed by the Sapphire Wind Power in Pakistan and second by Tres Mesas Wind Power in Mexico.

 

Market Developments

 

Bloomberg to cover more key green bond data making it easier for green investors

Bloomberg is joining the march to boost transparency in the green bond market, according to Environmental Finance. Bloomberg will expand on information provided for all bonds and provide specific green bond field including on: project selection, management of proceeds, reporting, and assurance.

 

Calling all potential issuers – investors want more green bond deal flow!

An interesting story came out this week when a leading green bond investor (and market champion) Dutch institution ACTIAM confirmed it has invested €900 million in green bonds since 2013 – fantastic news!

But, the really interesting part is that they actually wanted to be investing more (the overall target was €1bn), however the green bond market hadn’t grown as quickly as they anticipated and the huge demand for green bond overall hampered ACTIAM’s attempts. Let’s help ACTIAM out by getting more green bonds to market.

ACTIAM isn’t the only investor challenged to hit its green bond targets. Zurich has so far managed to allocate $800 million of its $2 billion target. Barclays, the only other investor to set a time limit on its pledge to invest in green bonds, achieved its target in November but has since expanded it’s target to $2bn.

Add to this the other commitments to the market by Deutsche Bank, HSBC and Crédit Agricole (all have pledges to invest at least €1 billion in green or sustainability bonds) and it is clear that this market isn’t short of demand – it’s the supply side that need mobilising.

 

Green bond gossip

New York’s Metropolitan Transportation Authority (MTA) is to issue a $500m green bond. certified by the Climate Bonds Initiative.

It’s a Triple Treat of Firsts

  1. The first green bond issued by MTA
  2. The first US municipal bond to be certified under the Climate Bonds Standards new Low Carbon Transport criteria
  3. The largest US certified green bond to date

Proceeds will be used to finance electric rail lines. Sustainalytics has certified that the bond meets the Climate Bonds Standard. MTA is only the seventh issuer to use the Climate Bonds Standard, and the first US municipal body to do so following the success of HFE, Nacional Financiera, ABN Amro, ANZ Bank, NAB and Big60million.

More to come next week!

 

Renovate America has announced a $217m green securitization. The deal is backed by residential green loans in California. More details in the next blog.

 

Stockholm County Council (SLL) announce third green bond – the first euro-denominated issuance by a Nordic city or region. RBS, Credit Agricole CIB, Danske Bank, and Nordea organized the investor road show. The green bonds will fund sustainable transport and green buildings. The SLL has previously issued two green bonds, totalling a collective SEK 2.9bn (£236m).

 

2016 set to be the biggest year ever for green bonds with big predictions from market leaders.

The ambition for the green bond market was set by HSBC’s January Green Bond research report, which predicted between $55m and $80m for 2016. The potential to go bigger than this was explained by SEB in the analysis of increasing interest in water infrastructure investment and green bonds standards refinement.

Then there is our prediction; we is sticking to our guns – this year will be big, not only because we’ve now a group of dedicated green bond issuers returning to the market, but also we’ve a growing trend of US municipal, European corporates and banks, and biggest of all – China is started to play ball (there’s already been $4.7bn Chinese green bond so far this year).

Hence we are expecting $100bn issuance this year. Time to get to work!