Bonds & Loans: KfW breaks euro orderbook record with green bond return

A weekly overview of ESG developments for fixed income: Second Swedish city goes sustainability-linked, UK DMO 'not ruling out' issuing SLB.

German development bank KfW saw its largest ever orderbook for a euro-denominated green bond last week, raising €3 billion in its first green outing this year. Initial orders for the 10-year bond, which pays a coupon of 1.375 percent, reached €29 billion, growing to €34 billion after pricing was tightened by 2 basis points, with the bond pricing at 56.4bps over Bunds. Green investors took 84 percent of the orderbook, with Germany and the UK taking 21 percent and 20 percent, respectively.

The Swedish city of Gothenburg has become the second in the country to tie its interest rate to sustainability targets, adding social and green KPIs to its renegotiated SKr8 billion ($812 million; €770 million) revolver. SEB acted as sustainability coordinator on the deal, agreed with a syndicate of “the six major Nordic banks”, which is linked to energy use in buildings, ending fossil fuel use in district heating by 2025, and having a fossil fuel-free vehicle fleet by 2023.

Unlike the two sustainability-linked bonds issued by Helsingborg in January and March, which are solely tied to cutting the city’s emissions, the new deal also includes one social target, namely ensuring there are no areas labelled by the Swedish police as “especially vulnerable” by 2025. The designation, currently applied to five neighbourhoods in the city, describes areas where it is especially difficult for police to carry out their work due to high crime rates, gang activity and extremism.

The UK’s Debt Management Office has said it is not ruling out a sustainability-linked bond issuance, although it has no current plans to do so. Speaking in response to calls from the Social Market Foundation for the government to enter the SLB market, a spokesperson told Responsible Investor that the DMO’s focus was mostly on delivering the second year of green gilts, but that it has “been watching developments with interest” in the SLB space.

The International Finance Corporation has announced plans to invest $100 million in a blue bond to be issued by BDO Unibank, the Philippines’ largest bank. IFC said that the deal – the first blue bond from the Philippines – would be aligned with both the green bond principles and the corporation’s recently released blue finance guidelines.

Green, social and sustainability bond issuance could reach half of total European issuance by 2026, according to a new report from PwC. Issuance will reach between €1.4 trillion and €1.6 trillion, PwC forecasts, with green bonds contributing the largest share. The report, based on a survey of 100 issuers and 100 investors, found 94 percent of issuers plan to increase GSS offerings in the next two years, while 88 percent of investors plan to increase their allocation across the same period. Public sector issuance will reach €712 billion by 2026, the report continues, driven by the EU’s green bonds.

The French Community of Belgium, a sub-sovereign issuer, has raised €600 million from a 2032 social bond. The borrower made its market debut in the format in June 2021.

Car financing company Tricolor has raised $212 million from a social bond to provide access to financing for low-income communities. The bond is collateralised with loans to low-income borrowers with no credit rating to finance the purchase of a car.

Deutsche Kreditbank covered its books in 15 minutes when it issued a 10-year covered bond for social housing in Berlin last week. The €500 million bond, which pays a coupon of 1.625 percent, saw peak demand of €2.5 billion, with the bank ultimately paying a new issue concession of 2bps. In other German banking news, Berlin Hyp has raised €750 million from its inaugural social bond. The bank’s head of funding said it saw more than €3 billion in orders including €195 million joint lead interest, with the bond printing at 2bps above mid-swaps. Proceeds will be allocated to affordable housing projects.

Swiss hospital Kantonspital Aarau entered the bond market for the first time in five years with a 15-year green bond debut to fund a new hospital building. The bank saw a negative new issue concession of 10-12bps on the SFr120 million ($123 million; €117 million) deal, which pays a coupon of 1.65 percent, but there was no indication this was driven by the note’s green label.

Norway’s Scatec has issued a $335 million green bond to refinance six Egyptian solar parks. The EBRD invested $100 million in the 19-year bond alongside the US International Development Finance Corporation, the Dutch development bank and German Investment Corporation, as well as private investors. MUFJ arranged the deal, which is backed by the 380MW solar parks.

Latvian state-owned utility Latvenergo has raised €100 million from a five-year green bond which was 1.6x oversubscribed. Seventeen investors including the EBRD and Nordic Investment Bank and investors in the Baltics, Finland and Sweden submitted purchase orders, the firm said.