Bonds & Loans: Social bonds slump as governments wind down recovery borrowing

A weekly overview of ESG developments for fixed income

Issuance of green, social, sustainability and sustainability-linked bonds in 2021 is set to hit the $1tn mark, according to the latest forecast from Moody’s ESG Solutions. With $217bn of issuance in Q3 and a cumulative $775bn so far this year, Moody’s estimates that green bond issuance will hit $500bn, with a further $200bn for social and sustainability and $100bn for sustainability-linked bonds. Social bond issuance in Q3 was significantly lower than in Q1 and Q2 at $29bn, as the three largest issuers – the EU and French public agencies UNEDIC and CADES – wind down their pandemic-related borrowing programmes. CADES did issue a $3bn social bond on Thursday, which was twice oversubscribed. The 5-year, 1.25% bond saw 28.5% allocation to ESG investors, with a third of the bonds allotted to UK investors.   

There is no pricing differential between ESG-linked leveraged loans and non-linked leveraged loans in Europe, according to analysis by S&P Global. Looking at a sample of 11 ESG-linked deals and 30 non-linked deals, there was only a one basis point difference in new issue spreads. 

The UK made history last week when demand for its second green gilt hit 12.3 times supply – the largest oversubscription ratio ever for a public sector green bond. The £74bn order book resulted in a ‘greenium’ of 2.5bp on the £6bn deal. The notes mature in 2053 and pay a coupon of 1.5%. They were mainly allocated to domestic investors. The UK has now borrowed £16bn, slightly over the £15bn it had originally committed to raise, making it the third largest green bond issuer globally.  

Meanwhile, Italy – which is co-hosting COP26 with the UK – also saw high demand for its offering. It tapped its sovereign green bond for €5bn in a deal that was 11-times oversubscribed. The 1.5% offering, due 2045, attracted €55bn in orders. Germany, which took to the market on the same day with a €3bn tap of its 0% green bond, due 2031, was only able to cover slightly more than half of it books at auction. The Finanzagentur received orders of just €1.774bn for the tap, reflecting the relatively lukewarm reception of the original issue, which received orders of €3.658bn for a €3.5bn raise. In other sovereign news, Denmark is “very close” to being able to issue green bonds, central bank Deputy Governor Signe Krogstrup has said.  

The New Zealand city of Auckland has raised NZ$300m (€185m) from a retail green bond, taking it past the NZ$1bn mark for retail green investment. Proceeds will be spent under eight eligible categories, including renewables, energy efficiency and sustainable water management. 

Canadian mining company Teck Resources has signed a $4bn sustainability-linked revolving credit facility with BMO. The 5-year deal is linked to emissions reductions, improved health and safety and improved gender diversity among its workforce.   

Canadian natural gas firm PrairieSky has added sustainability targets to its $425m credit facility. The interest rate on the facility, which matures in February 2025, is linked to the firm’s Sustainalytics management score. The banks involved in the deal were not named.  

Chesapeake Utilities has signed a $9.6m sustainability-linked loan with Bank of America to help it transport natural gas. The KPIs on the deal were not disclosed. 

Japanese electronics firm TDK plans to issue a 7-year sustainability-linked bond in November as part of its ¥100bn (€754m) bond programme. The interest rate on the bonds, whose size has not yet been decided, will be linked to three 2025 targets: reduction of CO2 emissions intensity per sales by 30%, holding an A or A- CDP Climate Change Score (currently A-), and sourcing 50% of its electricity from renewables (currently 23.9%). 

Meanwhile, Italian clothing company OVS is launching its sustainability-linked bond today, looking to raise up to €200m. The coupon on the six-year bond will be 2.25%, and is linked to the firm’s commitment to reduce scope 1, 2 and 3 emissions by 21% and achieve targets relating to supplier sustainability assurance, all by 2024. The coupon will increase by 10bp if it misses the scope 1 and 2 or scope 3 targets and 5bp if it misses its supplier targets, for a total possible increase of 25bp.  

Greece’s Piraeus Bank is also expected to launch a €500m 6-year green bond today. According to Greek financial newspaper Kathimerini, the proceeds will be split equally between financing and refinancing green loans. Initial price guidance has been set at 4%. 

A2A has raised €500m from a 1% green bond, maturing 2033. The Italian utility received €1.6bn in orders, and claims that its planned use of proceeds is fully aligned with the EU’s green taxonomy. It will disclose as part of its allocation reporting the actual volume of expenditures which are taxonomy-aligned.  

The International Finance Corporation has raised $500m from a 2.5-year social bond – the first to be benchmarked against the Secured Overnight Financing Rate, a new alternative to the LIBOR. The bond’s coupon is nine basis points above the SOFR. Investors in the Americas accounted for 83% of allocation, with central banks and official institutions taking 58%, followed by banks on 21% and asset managers on 12%. 

Finnish pulp and paper company Valmet has linked the interest rate of a new €300m revolving credit facility to hitting its climate targets. The facility, which refinances an existing agreement and will be used for general corporate purposes, is linked to Valmet’s progress against targets validated by the Science-Based Targets Initiative. 

UK-based engineering and consulting firm John Wood has signed a $1.2bn sustainability-linked loan with a group of 16 financial institutions. The interest rate on the loan is linked to reductions in scope 1 and 2 emissions and a growth in export revenues from energy transition and sustainable infrastructure. Meanwhile UK construction firm Balfour Beatty has added sustainability targets to its $375m revolving credit facility. The interest rate on the facility, which remained undrawn as of October 19, is linked to carbon reductions, the generation of ‘social value’, and its Sustainalytics ESG score. 

Seanergy Maritime Holdings has announced a $16.85m sustainability-linked loan, signed with a “leading European bank”, to partially finance the acquisition of a bulk carrier ship. The 5-year loan will pay LIBOR plus 3.05%, subject to a discount based on undisclosed emission reduction targets.  

Greenlight Planet Kenya has received $75m equivalent in sustainability-linked funding from Standard Bank, Citi, CDC Group and Norfund, to allow it to expand access to off grid solar power. The interest rate on the loan is linked to avoided emissions, gender balance among management and the number of people benefiting from reliable energy financing. 

French waste management firm Séché Environnement has raised €300m from a sustainability-linked bond. The coupon on the bond is linked to a 10% scope 1 and 2 reduction and a 40% increase in avoided emissions from recycling, both by 2025, with a 12.5bp increase for each target missed.