Green Bond Round-up, February 21: Queensland, KfW, Argentina’s La Rioja

Australia

Queensland Treasury Corporation has said this week that it will follow in the footsteps of fellow Australian state Victoria, and enter the green bond market. The state, whose economy is heavily reliant on the mining industry, will use proceeds to finance and refinance green projects that it fully or partly funds. It has outlined a broad list of eligible sectors to receive financing, including renewables, energy efficiency, green transport, drought resilience, flood defences, water and wastewater. It also suggests proceeds could be used for “preservation of the Great Barrier Reef and other natural ecosystems”. Queensland has been working with the Australian government, NGOs, banks and others as part of The Reef Trust – a body set up to find new ways to finance the protection of the country’s coral reef from further bleaching and destruction. RI understands that as part of this work, the government has been looking at issuing the world’s first sovereign ‘blue bond’, backed by mechanisms such as increased tourist taxes and premiums on fishing licenses. These bonds could also be issued under Queensland’s green bond programme, which will be certified by the Climate Bonds Initiative. No timeframe has been specified by Queensland, but the treasury said it would “soon brief key institutional investors” both domestically and overseas.

The move follows Victoria’s entry into the green bond market last July (link), making it the world’s first sub-sovereign green bond issuer. It sold A$300m of notes to 17 investors in a bid to finance green projects.
“Several Australian states are looking at the opportunities around issuing green bonds,” said one banker close to the Australian market. “Some states are considering coming out with their own renewable energy targets, independent from the federal-level goals, and those discussions also involve questions around how such targets would be financed.”
Australia has been a relatively quiet market for green bonds so far, with a handful of transactions last year, but this year may see more activity according to the banker, who says there are “an extensive number of transactions in the pipeline”. Flexigroup returned to the market just last week.
“Green bonds are now very much part of discussions with issuers who are in a position to finance assets this way,” he told RI. “Two or three years ago that was most definitely not the case, but we are getting more inquiries from investors and issuers.

“Eighteen months ago, if we pitched a green bond as a possibility, there would need to be an extensive education period, whereas now people are much more comfortable with the concept.”National Australia Bank has today announced plans to meet with investors ahead of the issuance of its first euro-denominated climate bond. The bank launched its debut green deal in 2014, doubling the original target size to A$300m on the back of investor demand. That deal offered a coupon of 4% and a tenor of seven years, and was certified by DNV GL against the Climate Bonds Initiative standard.

Europe

KfW has tapped its sterling green bond for the second time, raising £500m. The bond has a coupon of 1.635% and a maturity of June 2020. It first launched the sterling-denominated bond in 2015, as part of a green programme that includes euros, US dollars, Australian dollars and Swedish krona. This was the German development bank’s first green transaction of 2017, and brings the outstanding size of its sterling green issuance to £1bn. Leads were Citigroup, Deutsche Bank and TD.

The European Investment Bank has published the latest update on its Climate Awareness Bond programme. More than half of the €16bn of green bonds it has issued so far have been sold to bank treasuries, while fund managers, insurance and pension companies took 30%. The remaining notes have been bought by central banks, governments, corporates and retail investors. 84% of investors were in Europe, with just 10% in Asia and 6% in the Americas.

Latin America

Argentina has entered the green bond market for the first time, adding to the growing momentum around the asset class in Latin America. The province of La Rioja issued a $200m labelled deal to finance a 300MW wind farm in the province. According to a statement from the province, the bond is“guaranteed by the revenues” of the wind farm. On a roadshow in New York, Boston and London, La Rioja met with more than 50 investors and secured orders of more than $280m. The final deal offered a coupon of 9.75% and a tenor of eight years. In 2014, Peru’s Energy Eolica became the first issuer in Peru to tap the market when it launched a green project bond to finance wind farms in the country.

Africa

Nigeria said today (February 21) that it is meeting investors and capital markets operators in Lagos for its first ever Green Bonds Conference. Themed “Green Bonds: Investing in Nigeria’s Sustainable Development”, the Conference is organised by the Federal Ministry of Environment in collaboration with Federal Ministry of Finance and Debt Management Office and will take place on Thursday February 23 at the Nigerian Stock Exchange. “The Lagos Event is a concrete step in the process of developing and issuing our 2017 sovereign green bonds program,” said Amina Mohammed, the country’s former Minister of Environment who is now Deputy Secretary-General of the United Nations.