Bonds & Loans: EU issues world’s biggest green bond

A weekly overview of ESG developments for fixed income

The European Union has raised €12bn from its inaugural 15-year green bond off the back of the largest ever orderbook for a green bond at €135bn. The orderbook was slightly larger than the €132bn interest seen by the EU for its €14bn social bond in January, and led to the bond launching with a yield of 0.43%. The EU said that it saw a greenium of 2.5bp, but Antoine Bouvet, Senior Rates Strategist at ING, said that ING estimated the greenium to be 3bp – which would be roughly in line with the greenium seen by the UK for its inaugural green gilt towards the end of September. The EU is committed to raise at least €250bn of its €800bn Recovery and Resilience Fund via green bonds, with proceeds allocated to member states to be spent on eligible projects under the EU’s green bond framework. While the framework, which received a second party opinion from VE, will not be fully aligned with the EU’s own proposed green bond standard, this does not appear to have dissuaded investors. When asked whether the non-alignment had affected investor interest, Johannes Hahn, EU Commissioner for Budget and Administration said “the overbooking was 11 times and I’m wondering to which extent it should be even more overbooked”.

South Korea has raised $500m and €700m from a dual-tranche green bond. The 1.75% dollar tranche, maturing 2031 and the 0% euro tranche, maturing 2026 – the first ever euro-denominated sovereign green bond in Asia – attracted combined orders of $7.76bn. The euro tranche priced with a yield of -0.059%, making South Korea the first extra-European borrower to achieve a negative yield in euros. Just under half of the dollar tranche was allocated to banks, with central banks and agencies taking 37% of both tranches.

The European Investment Bank has raised £500m from its first ever sterling ‘sustainability awareness’ bond. The 5-year bond pays a coupon of 0.875% and received orders of £1.4bn. Proceeds will be spent under the EIB’s sustainability financing framework, which was recently expanded to include access to social and affordable housing.

The UK has announced the syndicate for its second green gilt, due to be issued some time next week. Bank of America Merrill Lynch, Morgan Stanley, NatWest Markets, RBC Capital Markets and Santander will act as Joint Bookrunners on the deal, with all other Gilt-edged Market Makers invited to act as co-lead managers. The gilt, which will mature in July 2053, will be a minimum of £5bn and will pay a coupon of 1.5%.

Spanish retail banking group Kutxabank has raised €500m from its inaugural green bond. The 0.5% notes, maturing 2027, saw orders of €1.2bn. Proceeds will finance eligible renewable energy, clean transportation and green buildings projects.

Baring Private Equity Asia has secured a $3.2bn sustainability-linked loan from a group of nine lenders. The interest rate on the loan is linked to gender diversity at its portfolio companies and GHG emissions reporting and reduction. 

Triodos Bank has launched a green bond framework, as it prepares for an inaugural issuance. The bank, which currently has a loan portfolio of €6.5bn and AUM of €22.7bn, said it would seek to raise between €250m and €300m from its first bond, with proceeds allocated to renewables, green buildings and environmentally sustainable management of living natural resources.

BBB-rated euro green bonds continue to show a clear greenium, but greeniums are less evident for A-rated bonds, according to a new report from Nordea. The report found a greenium for A bonds in March, which has since disappeared, with similarly clear greenium in Q1 2021 for BBB bonds which has since decreased. While the increasing supply of green bonds may reduce the incentive for investors to pay a premium, the report says, the greenium may persist in social and sustainability markets where issuance remains scarce.

Ørsted has added sustainability targets to its new €2bn revolving credit facility. The interest rate on the 5-year facility, which replaces Ørsted’s existing €1.4bn facility, will rise or fall each year based on the firm’s performance against two targets: the reduction of its Scope 1 and 2 emissions to 10g of CO2 per Kilowatt hour by 2025 and its aim to invest DKK350bn (€47bn) in taxonomy-aligned green investments by 2027. The latter will constitute investments in renewable energy capacity.

Packaged goods company General Mills has raised $500m from its first sustainability-linked bond. The interest rate on the 10-year bond will increase if the company fails to hit its 2025 Scope 1 and 2 reduction targets.

JP Morgan was the most prolific sustainable bond underwriter in the first nine months of the year, taking a 6.4% market share, according to data from Refinitiv. BNP Paribas and Citi took the second and third spots, with the top 10 underwriters taking 47.1% of the market between them. Total sustainable bond issuance in Q3 decreased by 12% against Q2, but is still the third highest quarter on record. Sovereign and agency issuers accounted for 41% of issuance so far this year, down from 53% last year, while corporate issuers accounted for 57%, up from 46% last year.

Sandstorm Gold has added sustainability targets to its increased $350m revolving credit facility. The Canadian firm will receive a 5bp discount on the LIBOR plus 1.875% to 3% interest rate on the loan if it improves sustainability reporting for its “producing assets”, maintains its MSCI ESG rating of A and maintains or improves diversity among its senior management and board.

CBRE Investment Management has raised €500m from its second green bond on behalf of its Pan European Core Fund. The 8-year 0.9% bond saw orders of €1.25bn, and will be used to finance green buildings assets for the fund.

Finnish credit institution Municipality Finance has raised €500m and £100m from taps on two pre-existing social bonds. The euro tap matures in 2035, and bears a coupon of 0.05%, while the sterling tap matures in 2025 and pays 0.375% annually. Proceeds will be spent on education, healthcare, sports and culture, and social housing projects.

Italian multiutility Hera has announced plans to raise €500m from its first sustainability-linked bond. Under the firm’s sustainability-linked financing framework, future instruments can be linked to Scope 1, 2 and 3 emissions reductions and the volume of plastics recycled by Hera Group. Meanwhile Photon Energy has said it plans to raise €50m from a new 6-year 6.5% green bond. Fellow Italian utility Iren raised €200m from a reopening of its 0.25% green bond, maturing 2031, which it plans to partially allocate to the installation of smart meters and improvements in its waste collection and sorting systems. With the reopening, 64% of the firm’s debt is now from green bonds.

Italian defense firm Leonardo has signed a new sustainability-linked revolving credit facility worth €2.4bn. The interest rate on the facility, which replaces two previous loans, will be tied to CO2 emissions reductions and an increase in the number of female employees with STEM degrees.

US medical real estate investment trust Healthcare Trust of America has signed a $1bn sustainability-linked revolving credit facility and a $300m sustainability-linked term loan with a syndicate of lenders. The REIT will initially pay an interest rate of LIBOR plus 1.05% for the facility and LIBOR plus 0.95% for the term loan, with a 1bp reduction in interest rate for achieving a 5% improvement in its GRESB assessment score or a 2bp reduction for achieving a 10% improvement.

Tishman Speyer has raised $425m from a green commercial mortgage-backed securities issuance to refinance an office development in New York. The real estate developer and investor did not disclose the terms of the bond, which refinances the initial construction loan from Bank of America. Sustainalytics said the borrower had "requested we not publish" its second-party opinion. RI has contacted Tishman about the SPO but it had not replied at the time of publication

Singapore’s OUE C-REIT has signed a S$540m (€344m) sustainability-linked loan with a consortium of five lenders including OCBC Bank. The interest rate on the loan, which will be used for refinancing and general corporate purposes, will be reduced if OUE hits energy and water efficiency targets for its commercial properties in Singapore and Shanghai.

French care services group Korian has €700m from its first social bond. The 7-year bond carries a coupon of 2.25%, and saw a “strong quality” orderbook of more than 70 investors. Proceeds will be allocated to eligible projects under Korian’s social financing framework, which include the construction of nursing homes and medical clinics and technologies which provide a safer living environment for the elderly.

Bahrain’s Gulf International Bank upsized a $500m sustainability-linked syndicated loan to $625m after receiving orders of $1.1bn. The interest rate on the loan is linked to emissions reductions, gender diversity and sustainability reporting targets. The bank, which is majority owned by the Saudi sovereign wealth fund, said that 20 investors from the US, Europe, the Middle East and Asia participated in the deal.

The US city of Tampa has raised $36.6m from a green bond to finance flood prevention measures.

Fragrances company Dr Vranjes has signed a €24.5m sustainability-linked loan with Oldenburgische Landesbank, linked to an increase of women in management positions and increased use of recyclable plastic packaging.