Bonds & Loans: Transition bonds are dead, says NN IP’s Bram Bos

A weekly overview of ESG developments for fixed income

The transition bond label is dead, Bram Bos, Lead Green Bond Portfolio Manager at NN Investment Partners has said. Speaking at a press conference on NNIP’s 2022 green bond outlook, Bos said “I think they were dying in September and they’re dead now”, adding that he had stopped tracking issuance levels because they are so low. While the explicit transition label itself is dead, Bos said that “green bonds often are transition bonds in the end”, and that investors were increasingly realising that big steps were needed. “We also are more and more realising that just transitioning is too slow … we have no time to lose, so we don’t have time for transition bonds.” NN IP forecasts €1.1tn of green, social and sustainability bonds in 2022, with green bond issuance rising 35% to €600bn, boosted by the EU’s green bond programme. 

German fibre-optic firm Deutsche Glasfaser has signed a €5.75bn credit facility with a group of lenders including AXA IM Alts, Generali and National Australia Bank. The facility, which was oversubscribed, is split into a €3bn term loan, €2.5bn capex facility and a €250m revolving credit facility. The interest rate on the facility, which will be used to repay existing debt and fund a fibre rollout, is linked to emissions reductions and the reduction of digital inequality. The firm is jointly owned by OMERS Infrastructure and EQT, the latter of whom has also secured a NZ$1.25bn (€750m) sustainability-linked loan for its elderly care business Metlifecare. The interest rate on the loan – the largest ever in New Zealand – is linked to the construction of new environmentally friendly care facilities and an increase in care capacity for dementia patients. 

HSBC has signed a sustainability-linked loan with National Energy Services Reunited (NESR), an oilfield services provider. The loan, of an undisclosed size, is linked to reductions in water waste, an increase in employee health and safety training and expanding its network of suppliers compatible with its supplier governance policies. According to the press release, NESR has also pledged to establish a carbon reduction strategy, and is considering setting a target verified by the Science-Based Targets initiative.  

In sovereign news, Chile has sold Cp1.06tn (€1.1bn) in social bonds, completing its fundraising programme for the year. The June 2024 notes launched with a coupon of 5.8% amid uncertainty over who would win the second round of Chile’s presidential election on December the 19th. Both domestic and foreign investors took part in the deal, but allocation figures were not disclosed. Meanwhile, France is considering launching the world’s first sovereign inflation-linked green bond next year, with the prospect of a 10 to 15 year deal. Norway, which only tends to issue bonds in order to maintain a yield curve, told IFR that it had no plans to issue a green bond, while Finland said that investors could “remain assured of the high ESG quality of nominal Finnish government bonds”. 

Green bonds aligned to the proposed EU Green Bond Standard are likely to see higher greeniums than other green bonds due to rising demand for EU GBS-aligned investments and low initial availability, according to new research from Commerzbank. When the EU’s sustainable finance disclosure regulation is fully implemented, GBS-compliant bonds “will have a significant advantage over other ESG assets” due to their automatic inclusion in the taxonomy-aligned quota. With Commerzbank calculating that almost half of sovereign green bonds and 18% of corporate green bonds from 2021 would not GBS-eligible, it is likely that the scarcity of eligible bonds, especially in the standard’s infancy, will lead to increased greeniums.   

The US state of Connecticut has raised $300m from social bonds with a range of maturities from 2035 to 2042. In other SSA news, the European Investment Bank raised €250m from a tap of its 0.375% sustainability awareness bond, due May 2026.  

Of the €225bn of revolving credit facilities signed in Europe this year, 43% were sustainability-linked, according to data from Bloomberg. This is an increase of 18 percentage points on last year and a 42 percentage points on 2017, when just 1% of revolvers were ESG-linked. Overall sustainability-linked loan sales reached €156bn, out of a total corporate loan raise of €420bn. 

US pharma firm Merck & Co. has raised $1bn from its inaugural sustainability bond, part of a wider $8bn offering. The 1.9% notes are due 2028, and proceeds will be allocated to “priority ESG areas”, which include infectious disease research and renewable energy generation. Two banks also hit the dollar market for green bonds this week, with Toronto Dominion raising $500m from a 2-year green bond and ABN Amro raising $1bn from an 8-year green bond. 

Green bond titan Fannie Mae has reached the $100bn green mortgage-backed securities milestone. The largest green bond issuer in the world, Fannie Mae has accounted for around a third of all green bonds issued in the US. 

The China Development Bank has raised CNY15bn (€2bn) in bonds to fund the construction of low-carbon public transport. The 2.19% bonds were 4.3 times oversubscribed with domestic and foreign investors participating in the deal, the Bank said on Monday. Meanwhile the China Construction Bank raised $500m from 3-year floating-rate notes paying Sofr plus 50bp. Orders reached $800m for the notes, including $575m interest from lead managers. 

French construction firm NGE has raised €350m from a sustainability-linked credit facility and €150m from a dual tranche sustainability-linked bond. Societe Generale, which acted as ESG Coordinator and Global Coordinator on both transactions, said that both raises were oversubscribed. The interest rate is linked to the number of women among building site managers, reductions in accident frequency rate and reductions in GHG emissions. NGE will also pay a charitable donation to organisations active in these three areas if it misses its targets. 

Swedish appliance manager Electrolux upsized its inaugural €990m sustainability-linked revolving credit facility to €1bn following a significant oversubscription from the 11 banks on the deal. Citi and SEB acted as coordinating bookrunners and mandated lead arrangers, with HSBC, Danske Bank, Deutsche Bank, Banco Bradesco, BNP Paribas, JP Morgan, Morgan Stanley, Svenska Handelsbanken and Swedbank joining the deal. The interest rate on the loan, which refinances an existing facility, is linked to the firm’s ambitions to be “climate neutral in operations by 2030; to be a leader in energy-efficient products which reduce carbon emissions while in use; and to continue ensuring the health and safety of employees”.  

UK housebuilder The Hill Group has signed a £220m sustainability-linked revolving credit facility with Lloyds Bank, NatWest, HSBC and Santander, linked to biodiversity gain, reduction of “operational carbon”, scope 1 and 2 reductions and improvements in the company’s overall sustainability rating. Meanwhile, Home furnishings company has signed a £185m sustainability-linked revolver with Barclays, Lloyds, NatWest, Santander and Credit Industriel et Commer. The interest rate on the 4-year loan is linked to a 50% reduction in GHG emissions by 2030, a 20% reduction in plastic packaging by 2024, improved provision of a ‘customer take-back’ service and all of its cotton products meeting responsible sourcing standards by 2025. 

Rabobank, DNB, and Nordea have signed a €700m sustainability-linked revolving credit facility with Faroese salmon farmer Bakkafrost. The interest rate on the facility, which will refinance existing facilities and be used for general corporate purposes, is linked to multiple undisclosed SPTs. 

Shipping company Safe Bulkers has signed a $100m sustainability-linked loan linked to emissions reduction targets and secured against six shipping vessels.  

Erste Bank Hungary has raised HUF10.4bn (€28.4m) from its inaugural green bond off the back of a HUF16.95bn orderbook. Proceeds from the 4.27% bonds – due May 2029 – will be used to refinance mortgages for energy efficient homes. Meanwhile, South Africa’s Standard Bank has raised R1.4bn (€77m) from a 10-year green bond and issued a R1.5bn tap of its previously issued R2bn social bond.