Bonds & Loans: Huge demand for UK’s £10bn debut green gilt

A weekly overview of ESG developments for fixed income

The UK has made a big splash with its £10bn entry to the sovereign green bond market, taking the crowns for largest ever green bond, largest ever gilt orderbook and largest ever green orderbook. The 12-year 0.875% notes saw total orders of £101.4bn from 217 investors, including many non-gilt buyers. Asif Sherani, Head of HSBC's EMEA Debt Syndicate, told Global Capital that there was a greenium of 2.5bp, which would be the largest ever greenium for a high-rated sovereign, beating the 2bp which Germany saw for its 30-year green bond in May. This is the first of two planned green gilt issuances for this year, with a second longer maturity deal of at least £5bn due in mid to late October.

Investors welcomed the landmark deal, with AXA Investment Managers describing it as a “hugely positive step”, which “shows [the Government’s] commitment to becoming a leader in combating climate change”. Triodos Investment Management, which said that it would not participate in the sale due to the inclusion of blue hydrogen in the UK’s green bond framework, said that it nonetheless welcomed the “clear enthusiasm” for the green gilt. William de Vries, Director of Impact Equities and Bonds, told RI that it was “an indicator of the increasingly strong interest for green bonds in the UK sterling market”. Triodos’ decision not to invest in the bond for not meeting its minimum standards, some of the strictest in the sector, “does not mean that we should disregard the gilt completely. It is still a very appealing green bond for many investors”, he continued. Quentin Fitzsimmons, a Portfolio Manager for T. Rowe Price’s Global Aggregate Bond, told RI that he was not surprised by the strong demand, but that the size of the orderbook was “an exceptional outcome” for the government. “There is every reason to expect that longer maturity issuance will also do very well given the nature of pension fund liability-driven demand present in the UK market”, he said. However, Fitzsimmons raised a note of caution, saying that “the challenge for all issuers will be whether preferences mean that non-warranted green issuance becomes harder to draw investors and more expensive”.

Two other sovereigns took to the market this week, with Serbia achieving its lowest ever coupon on an international bond from a €1bn green bond. The seven-year bond launched with a coupon of 1%, with combined orders of €4.1bn for the green bond and a longer maturity vanilla bond issued alongside driving the interest rate down by 35bp. Meanwhile, Chile has raised around $2.1bn from a dual currency social bond issue. The country raised €918m from a 0.555% note due 2029 and a $1bn 3.25% note due 2071, adding to the total of $25.7bn in labelled bonds it has issued since 2019.

Germany’s finance agency has said that it aims to issue a similar level of green bonds in 2022 as it has this year. Germany will aim to raise a further €12.5bn from green bonds, with an issuance plan for the coming year published in December.

Nordea has announced a partnership with the European Investment Fund (EIF) to offer Swedish and Finnish SMEs reduced interest rates on green loans. As part of the agreement of a €1.8bn credit risk insurance purchase from the EIF, €400m in loans will be offered to finance investments which meet strict sustainability criteria, examples of which given by Nordea include solar and wind power plants, clean transportation providers and companies in the pollution prevention sector.  

Enel has raised €3.5bn from a triple-tranche sustainability-linked bond sale, the largest Euro issue ever. The Italian utility, which issued the first SLB in 2019, raised €1.25bn from a 0% 5-year bond, €1bn from a 0.375% 8-year bond and €1.25bn from a 0.975% 13-year bond. The coupon on each of the bonds will be increased by 25bp should Enel fail to meet its interim carbon intensity reductions by 2023 for the first two tranches and 2030 for the third. Total orders reached approximately €11bn, Enel said.

Meanwhile, energy distribution company Enbridge doubled its previous SLB greenium on its debut Canadian dollar-denominated sustainability-linked bond, the firm has said. The C$1.1bn (€732m) 12-year bonds were sold at 165bp over government securities, 10bp tighter than the pipeline giant’s vanilla bond, its Vice President of Treasury Max Chan said. 

South African hospital operator Mediclinic has added sustainability targets to the refinancing of its ZAR8.45bn (€484m) loan, the first sustainability-linked banking facility in Africa. The five-year facility, split into a ZAR7.59bn secured loan and ZAR500m revolving credit facility, has an interest rate of three-month JIBAR plus 1.5% and 1.6% respectively. The interest rate on the financing is linked to Mediclinics goals of becoming carbon neutral and eliminating its waste to landfill by 2030.

Singapore’s National Environment Agency has raised S$1.65bn (€1bn) from a dual-tranche green bond, its first. The final order book for the 10-year 1.67% S$350m and 30-year 2.5% S$1.3bn notes “stood in excess of” S$2bn, according to a statement by sole arranger DBS. Proceeds will be spent on infrastructure in the country, with the Tua Nexus Integrated Waste Management Facility identified in the agency’s green bond framework as one of the main projects.

German development bank KfW has raised €3bn from its longest ever maturity green bond. The 10-year issue takes KfW to a total of €11bn raised from green debt this year, with 75% of allocation going to green investors on an orderbook of €22bn.

ISPT Retail Australia Property Trust has signed a $495m sustainability-linked loan with a group of banks including Commonwealth Bank. The loan makes the Trust Australia’s largest sustainability-linked loan issuer and is linked to GHG emissions intensity, water consumption, waste reduction and labour certification across its retail properties.

US machinery manufacturer Flowserve has signed a $800m revolving credit facility and $300m term loan with a syndicate of lenders including Bank of America. Neither the targets attached to the loan nor the interest rate adjustment mechanism were disclosed.

Australia’s A$150bn Aware Super has said it will invest up to A$1bn (€618m) in green and sustainability-linked bonds by the end of the year, with the purchases funded from selling off some of its Australian government debt holdings. Its portfolio will be benchmarked against the Bloomberg AusBond Composite Index.

KiwiRail has secured a NZ$350m (€210m) loan facility provided by Westpac NZ, Societe Generale, Bank of America and National Australia Bank in the first Climate Bond Initiative-certified green shipping loan. The state-owned rail and ferry operator will use the loan to partially finance two new inter-island ferries, which operate using a combination of diesel and battery power, and will result in a 40% reduction in carbon emissions from the inter-island service once three old ferries have been phased out.

Berlin Hyp has raised Sfr200m (€184m) from its third green bond. The 8-year bond launched with a 0.25% coupon, with 85% of allocation going to asset managers, 9% to banks and 3% to insurers.

Italian coffee company Lavazza has taken out a €500m sustainability-linked loan with a pool of Italian banks. Proceeds from the 5-year loan, which is linked to multiple undisclosed sustainability targets, will also be spent on green projects. BNP Paribas BNL, Banco BPM and Intesa Sanpaolo acted as mandated lead arrangers and lenders.

Brazilian railroad operator Rumo has raised $500m from a 10-year sustainability-linked bond. The firm will see a 25bp step-up in 2027 if it has not met its 17.6% Scope 1 and 2 reductions target by 2026.

Johnson Controls has raised $500m from its inaugural sustainability-linked bond. The 2% coupon on the 10-year notes is linked to Johnson’s commitment to reduce operational emissions by 55% and Scope 3 emissions by 16% by 2030. It will pay a premium if it has failed to meet its interim target by September 2025.

Boston Properties has raised $850m from its fourth green bond. Proceeds from the 2.45% notes, due 2033, will be used to partially refinance the office space developer’s 3.85% notes due 2023.

The Central American Bank for Economic Integration has raised Chf200m (€184m) from its first social bond in the Swiss market, the first multilateral development bank to issue a Swiss social bond. 68% of the 10-year notes were allocated to asset managers, followed by insurance companies and private banks on 14% and 13% respectively and pension funds on 5%.

Mexican food processor Grupo Bimbo has added ESG targets to its renewed $1.75bn revolving credit facility. The 5-year facility is linked to undisclosed targets relating to energy and water usage.

Japan’s GLP J-REIT has privately placed a ¥6bn (€468m) sustainability-linked bond with Dai-Ichi Life Group. The 0.284% interest rate on the 7-year bonds will be reduced by 5bp in September 2025 if GLP J-REIT has met its target of 80% of its properties achieving a high environmental certification by the end of 2024.

German commercial real estate firm DIC Asset has raised €400m from its inaugural green bond. The 5-year, 2.25% bonds were “significantly oversubscribed”, the firm said, leading it to upsize the issuance by €100m. Proceeds will be spent on the acquisition of green buildings to be held in DIC’s portfolio. Meanwhile, UK commercial property firm Sergo raised €500m from a 10-year green bond which was six times oversubscribed.