Bonds and Loans: Philip Morris financing framework aligned with sustainability-linked bond and loan principles, says second-party opinion

A weekly overview of ESG developments for fixed income

Tobacco giant Philip Morris International’s “business transformation-linked financing framework”, published last week, is fully aligned with both the sustainability-linked bond and loan principles, according to a second party opinion issued by S&P Global. As part of the firm’s ambition to transition to smoke-free products, it has set two KPIs to which the interest rate on any future sustainability-linked financing will be linked: an increase of net revenue from smoke-free products to 50% from 23.8% by 2025 and an increase in the number of markets where smoke-free products are available to 100 from 64 by the same year.

The Climate Bonds Initiative (CBI) has increased its yearly forecast for green bond issuance to $500bn from $400bn-450bn in its January forecast, and said that it projects issuance to break the $1tn mark by 2023. With total green investment in H1 reaching $227.8bn, the CBI said that the $1tn milestone was “now in sight” for 2023.

The UK will issue its inaugural green gilt in the week of 20 September, the Debt Management Office (DMO) has said. Following consultation with investors and banks, the DMO fixed the maturity for the first issue in 2033, with a second issue of between 20 and 30 years maturity due in mid to late October.

Meanwhile, Austria has announced plans to launch its inaugural green bond in the first quarter of 2022. While the details of the deal are yet to be finalised, Austrian Finance Minister Gernot Bluemel said that securing a greenium could be a potential benefit for the country. 

ATP, Denmark’s largest pension fund, has said that it will enter the corporate green bond market for the first time, saying that it is confident enough in its ability to spot greenwashing to step beyond the sovereign and sub-sovereign green bonds currently in its portfolio. The fund currently has DKK40bn (€5.3bn) in sovereign and sub-sovereign green bonds, a figure which it said was likely to rise.

Nederlandse Waterschapsbank has raised €1bn from an SDG housing bond. The 10-year bond received €2bn of interest, including €50m from the joint lead managers, and will fund loans to social housing providers in the Netherlands.

Canada’s Granite Real Estate Investment Trust has raised C$500m (€335m) from its second green bond. Granite also conducted a cross-currency interest rate swap on the seven-year, 2.194% notes, exchanging the Canadian dollar-denominated principal and interest payments for US dollar denominations, resulting in an interest rate of 2.096%.

National Australia Bank has launched a sustainability-linked derivatives product in Australia, with ANZ reportedly also preparing a launch. While no Australian firm is known to have entered into a sustainability-linked derivatives contract, NAB has already signed six such deals with European companies, including with non-profit elderly housing provider Anchor Hanover. The bank plans to offer a 20% discount on credit spreads charged on interest rate swaps, inflation swaps and cross-currency swaps for clients which hit sustainability targets attached to the deal.

Taiwan High Speed Rail Corp has become the country’s first public transport provider to issue a sustainability bond, raising NT$1bn (€30.5m) from a three-year 0.3% issue. Proceeds from the bond will be used to accelerate the automation of its Yenchao maintenance depot, the company said.

The Hong Kong Government has fully allocated the $2.5bn proceeds of its February triple tranche green bond issuance, with almost half of the funds raised going to fund green buildings across the city, according to its 2021 Green Bond report. Just over 43% of the funds raised will be or have been spent on green buildings, with a further 35% going to waste management and resource recovery, while waste and wastewater management and energy efficiency and conservation have each been allocated around 10% of the proceeds. A total of 14 projects have been selected, including the redevelopment of the Queen Mary Hospital and the expansion of the Sha Tau Kok Sewage Treatment Works.

US network operator Verizon has fully allocated the proceeds of its second $1bn green bond to virtual power purchase agreements for renewables energy projects, according to its 2021 green bond report. The projects account for approximately 1GW of new renewable capacity, split between solar and wind.

Dubai-based retail giant Majid al Futtaim has signed a $1.5bn sustainability-linked loan with a consortium of 12 banks, with Standard Chartered acting as sole sustainability coordinator. The five-year revolving credit facility is the largest in the MENA real estate sector, and the first by a privately-owned company in Dubai. The interest rate on the loan is linked to three KPIs, including receiving LEED Gold certification for all of its shopping centres and reaching 30% women across its board and senior management. 

China Merchants Bank has raised $600m from a dual-tranche ESG bond offering. The issue was split between a $300m Sofr plus 50bp two-year sustainability bond and a five-year 1.25% green bond. The deal received $3bn in orders and proceeds will be allocated to eligible categories including renewables, affordable basic infrastructure and sustainable water and wastewater management.

ESG bond issuance in India is likely to cross the $10bn threshold this year, according to JP Morgan. The bank, which has advised on 12 of the 13 ESG bond issuances this year, said that issuance would continue to be led by renewables firms, which have accounted for $3.6bn of the $6.24bn issuance this year, but that high-carbon sectors such as cement and steel would increasingly need to raise green debt.

Vinda International has signed a HK$300m (€32.6m) sustainability-linked loan with China Construction Bank. The KPIs attached to the loan were not disclosed, but the firm said that the proceeds would be spent on “environmental protection operations” which would contribute to it achieving the SPTs. 

Norwegian savings bank SpareBank 1 Nord Norge has raised Sfr130m (€120.4m) from its inaugural green bond. Proceeds from the seven-year bond will finance loans in eligible categories including green buildings, the circular economy and renewables.