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Bonds and Loans: Current green bond frameworks don’t work for EM debt markets

A weekly overview of ESG developments for fixed income

Emerging markets debt capital markets must be overhauled if they are to benefit from investor appetite for climate change and sustainability-related bonds, according to Imperial College London. A report, based on interviews with more than 40 emerging market asset managers and global banks, found that existing green finance frameworks – designed by developed markets – may not be suitable for debt issuance in emerging markets. It also recommends a heavier emphasis on transition bonds for countries unable to meet stricter green bond criteria.

The European Leveraged Finance Association and Loan Market Association are teaming up to create best practice guidelines for including ESG provisions into leveraged loan agreements. This will include ESG-linked margin ratchets, which allow lenders to hold borrowers to account for failing to meet targets. Sabrina Fox, CEO of the ELFA said the move is “critical to helping our market avoid the risk of greenwashing”.

NN Investment Partners has launched a new Sovereign Green Bond fund, which it claims is the first of its kind. The fund joins NNIP’s corporate, aggregate and short-duration green bond funds, and will follow the same investment approach. It will be run by Lead Portfolio Manager Bram Bos. NNIP said its green bond strategies and mandates had collectively hit €3.7bn over five years. 

AXA has announced the successful placement of €1bn of subordinated green bonds, due 2041. Proceeds from the bonds will be used to finance or refinance eligible projects across green buildings, renewables, clean transportation, energy efficiency and natural resources. The bond has an initial coupon of 1.375%, which will become a floating coupon – based on 3-month EURIBOR plus a margin including a 100 basis points step up – in October 2031.

Russian mobile operator MTS has issued RUB 4.5bn (€49.5m) in social bonds. The three-year bonds have a coupon of 6.5% and will be used to develop broadband infrastructure across eight regions of Russia, in line with Russia’s digital economy project, which aims to expand internet access to rural and remote areas. A second party opinion by Russian credit ratings agency Expert RA confirmed that the bonds are in line with ICMA’s Social Bond Principles.

Indian renewables company ReNew Power has announced the successful pricing of $585m in US-denominated bonds. The 7.25-year, unlabelled bonds have a fixed coupon of 4.5% and will be listed on the India International Exchange.

Real estate firm VGP has issued a €600m 8-year green bond. The bond, which pays a coupon of 1.5%, was 2.7 times oversubscribed. Proceeds will be used to finance or refinance a portfolio of assets under VGP’s Green Finance Framework.