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Green Bond Round-up, Aug. 23: National Bank of Abu Dhabi, Mexico’s Nacional Financiera, Los Angeles

The latest green bond developments

With Europe still mostly on holiday this week, the rest of the world seems keen to make sure the green bond market stays active, with issues being prepared for September too. Taking the baton from Asia – which was behind a number of deals in recent weeks – Latin America prepares to step up again, and the Middle East will make an exciting debut after months of speculation.

Middle East

The Middle East is to become the final region in the world to tap the green bond market this week, in an exciting move for the asset class.

The National Bank of Abu Dhabi has prepared a green bond framework ahead of what is reported to be a $500m transaction being roadshowed in coming days. Proceeds will finance or refinance loans to a large range of green projects, according to the document, including renewables, energy efficiency, low-carbon buildings, sustainable waste and water management, clean transport, climate change adaptation and “decarbonising technologies”.

“Up to 100% of the proceeds may be applied to refinance existing eligible projects,” the bank said, adding that it aims to allocate all proceeds within 12 months. This will sit favourably with those investors who like the proceeds of a green bond to be invested in projects already shown to be successful and stable. Others shy away from transactions that potentially comprise 100% refinancing, as there is normally no explicit commitment from the issuer to use the recycled capital to finance new green projects, and this raises the question of whether the proceeds actually support any further green development, or simply fund projects that would exist anyway.

NBAD, which last month agreed a merger with First Gulf Bank, said it expected the proceeds to be allocated to projects in the Middle East region, but it is possible that – because the bank operates in 17 countries across five continents – the funds “may be used globally”. The second-party opinion on the green bond has come from Vigeo Eiris.h6. Latam

In Latin America – a region which has only seen a handful of green bonds so far – Mexican development bank Nacional Financiera is breaking more ground with its second issuance. It came to market last year with the first Mexican green bond, in a $500m deal which saw investor demand at more than 500% of available notes. This year, it plans to go a step further and issue Latin America’s first green bond in domestic currency. It will issue the seven-year bond in Mexican pesos – between MXN1bn and 2bn (€48m – €96m). The proceeds will be used to support onshore wind and small hydro projects. Eligible projects will include the operation of renewables sites, according to a second-party opinion from Sustainalytics, which is likely to cause concern for some investors who feel proceeds from green bonds should be reserved for capital expenditure rather than operational expenses. Other eligible projects include the development and construction of run-of-river hydro, up to 50MW, and facilities and infrastructure linked to renewable energy.

The Climate Bonds Initiative highlighted at an event in Mexico on Monday the importance of policy measures in helping the country reach its ambitious climate goals. In a report on the subject, it called for “fiscally efficient” tax and regulatory incentives in the country, saying the government must undertake analysis into the area with a view to introducing measures next year.

US

The Port of Los Angeles is planning its inaugural green transaction, which – according to a draft of its second-party opinion, seen by Responsible Investor – will be used, in part, to refinance costs relating to the “beautification” of residential areas in the port. The document by Sustainalytics states that proceeds will be used for green projects including the development of a shallow-water habitat and a marina, and the Alameda Street beautification project. The deal will also finance the design and construction of a LEED-certified, energy efficient police headquarters. The document is dated September 7 2016, so expect a deal next month.

After the publication of this story Sustainalytics has pointed out that the document was not a draft framework but an example outline of what an opinion piece could look like that was provided prior to working with the Port of Los Angeles. Therefore, the second opinion will look far different than what was conveyed, a spokesperson said.

The Midpeninsula Regional Open Space District, which acquires and preserves green space in Santa Clara and San Mateo, is also readying itself to tap the market. The organisation received an AAA rating from Fitch Ratings on a $57.4m green bond. The notes are slated to come to market early next month, and will be used to refund outstanding debt to secure interest savings.