Bonds & Loans: Use-of-proceeds bonds could make up 10% of global debt by end of 2021

A weekly overview of ESG developments for fixed income

Green, social and sustainability bond issuance is expected to hit $850bn by the end of the year – up to 10% of global debt issuance –  according to the latest predictions from Moody’s. The ratings agency forecasts $450bn in green bond issuance in 2021, with a further $200bn each for social and sustainability bonds and $100bn in sustainability-linked bonds. Updates to the Green and Social Bond Principles, and the development of an EU Green Bond Standard are expected to improve standardisation and credibility in the market. However, the Green Bond Standard could struggle because of its ties to the EU’s complicated and ever-changing green taxonomy, Moody’s warned. 

Meanwhile, S&P Global has found that US companies are particularly keen on sustainability-linked loans (SLLs), raising $122bn in SLLs in the first half of 2021 – up from just $19bn in 2020. Globally, the instrument is outstripping green bonds and loans, S&P said. In the first sixth months of the year, $350bn was borrowed in sustainability-linked loans, versus $202bn for green bonds and just $42bn for green loans. 

Mann+Hummel has become one of the first issuers in the world to combine use-of-proceeds green bonds with the entity-level requirements of a sustainability-linked bond. In its latest transaction, the German filter manufacturer raised €150m from four Euro tranches and two USD tranches of a sustainability-linked green Schuldschein. Proceeds must be allocated to eligible green projects, but the coupon is also linked to the firm’s sustainability score – as measured by EcoVadis. If the company’s score has dropped below 52 by 2025, the margin will increase by 5bp, with a corresponding decrease if it has risen above 59. In 2026, these numbers change to below 58 and above 66.

The Kingdom of Spain’s green bond framework has received a 78/100 sustainability rating from second-party opinion provider V.E – ranking it 14th in the world. The country plans to enter the market in September in order to fund projects including renewable energy, clean transport and conservation. 

Valeo, a French supplier of technology for vehicles, has raised €700m from its inaugural sustainability-linked bond. The 7-year bond saw orders of €2.3bn and launched with a coupon of 1%, with France, the UK and Ireland, and Germany and Austria accounting for 89% of allocation. If Valeo fails to reduce its direct and indirect emissions to 37.95 metric tonnes of CO2 equivalent or increase the percentage of suppliers evaluated on their sustainable development practices to 82% by the end of 2025, the interest rate on the bond will be increased by 37.5bp.

The Canadian province of Ontario has raised C$2.7bn (€1.8bn) from Canada’s largest green bond. The 8-year, 1.55% bond is Ontario’s tenth, and saw an order book of C$3.4bn. Eight eligible projects have been selected including public transport and flood protection.

Canadian real estate investment trust Allied Properties has raised C$500m (€336m) from its second green bond. The 11-year deal has a coupon of 3.095%. Allied said that, prior to allocating the proceeds to green projects, it will use them “to prepay approximately $494 million aggregate principal amount of first mortgages and (b) for general trust purposes”. 

Scotiabank has raised $1bn from its debut sustainability bond, which it will spend on an in-house initiative to empower women, and on lending to renewables, electric vehicles and affordable housing. 

ANZ has launched a sustainability-linked derivatives product, available in Australia, Hong Kong, Japan and Singapore. The product includes swaps, forwards, cross currency swaps, interest rate and foreign exchange options executed alongside sustainability-linked bonds or loans. The pricing component of the derivatives will be tied to the SPTs of the underlying bond or loan.

South African Real Estate Investment Trust, Redefine Properties, has issued a R1bn (€58.5m) three-year sustainability-linked bond with an interest rate based on whether it can reduce its Scope 1 and 2 emissions by 10% and its water usage by 5.1% by 2023, and increase its solar energy generation by 25% over the same period. 

Cofinimmo has signed a €25m sustainability-linked loan with Spanish bank BBVA – its first deal in Belgium. The interest rate on the deal will rise or fall based on the property company’s performance against set energy intensity targets.

India’s Acme Solar has raised $334m from a five-year bond which saw investor demand reach triple the supply. Just over half the 4.7% notes went to investors in Asia and the Pacific, while investors in EMEA and the Americas were allocated 22% each.

Louis Dreyfus’ Co Asia is seeking to raise $450m from a syndicated sustainability-linked loan. ANZ, Crédit Agricole, DBS, Standard Chartered and Société Générale are arranging the three-year loan, which pays 90bp over Libor. Louis Dreyfus will receive a 1bp reduction if it meets targets relating to reductions in CO2 emissions, electricity and water usage, and the amount of waste it sends to landfill.

Prudential Financial has added sustainability targets to its renewed five-year $4bn credit facility. The interest rate on the facility, the first of its kind for a major US insurer, is linked to reductions in GHG emissions and increased diversity among the senior leadership.

Alkion Terminals has agreed a sustainability-linked refinancing worth €370m with a group of lenders including Credit Agricole, BNP Paribas, Allied Irish Bank, Banca Intesa and Siemens, and a loan with UBS Asset Management. The interest rate on the deal is linked to three undisclosed sustainability targets.

Central America has seen its largest ever green bond this week, in a deal from Investment Energy Resources, a subsidiary of Guatemala’s Corporación Multi Inversiones. The firm has raised $700m in eight-year, 6.25% notes to refinance eligible green projects.

Shipping firm NYK has raised ¥20bn (€154m) from Japan’s first ever transition bond. The dual-tranche deal includes five-year and seven-year paper, with coupons of 0.26% and 0.38%. Proceeds will be used to fund vessels fuelled by hydrogen, natural gas, ammonia or LPG, as well as offshore-wind support vessels and efficiency improvements in its fleet.

Taiwan’s Advanced Semiconductor Engineering has signed a two-year, $505m sustainability-linked loan with Standard Chartered Taiwan, with an interest rate linked to its greenhouse gas emissions and its inclusion in Dow Jones’ Sustainability Indices.