Green Bond Round-up, March 21: Cape Town, EIB, Queensland, Shenzhen/Luxembourg, Nippon Life

It’s been a busy week. Responsible Investor broke details yesterday of the launch of BlackRock’s first dedicated green bond fund, which will track the MSCI/Barclays/Bloomberg green bond index. Ashley Schulten, Head of Climate Solutions for Fixed Income at BlackRock said that although the investment giant already invested in green bonds through various of its separately managed accounts, a pooled fund was the obvious next step. For full details, see here.

Africa

Cape Town is preparing to issue a green bond to finance public transport, energy efficient buildings, water management, sewerage and coastal conservation. It becomes the second in South Africa to come to market with a labelled deal, after Johannesburg back in 2014. In a statement by Mayor Patricia de Lille a number of projects were outlined, such as electric buses, water mater installations, upgrades of reservoirs and effluent treatment for sewerage.

The statement says the bond will be up to R1bn (€74m), and is slated for July. “We are hopeful that the investor response will be favourable, given our strong credit rating… and our credibility in delivering meaningful initiatives to enhance the sustainability of our city,” it said. A report was presented to the Mayoral Committee yesterday relating to Cape Town updating its medium-term note programme to allow green bond issuance. It is expected to be referred to full Council later this month.

Australia

Green and SRI investors piled in on Queensland’s green offering last week, causing it to be upped to A$750m from initial plans of at least A$500m, and making it the largest ever green bond from an Australian issuer. The seven-year deal, which was launched last Tuesday, offers a 3% coupon and a reoffer yield of 3.0275%. “The book grew quickly with green and SRI investors quickly covering the book with additional offshore and domestic participation,” according to David Jenkins, Director of Capital Financing Solutions and Green Bonds at joint lead manager National Australia Bank. The final order book exceeded A$1.2bn, although issuance was capped at A$750m. Over 90% of the final notes were allocated to ‘responsible’ investors. More than three quarters were snapped up by buyers in Australasia, with 11% going to Asia, 9% to Europe, the Middle East and Africa and 4% to the Americas. Queensland has a AA+ rating from S&P and an Aa1 from Moody’s. Asset managers took 77% of the bond, while pension funds and insurers bought 13.2%.

Asia

The Shenzhen Stock Exchange, the Luxembourg Stock Exchange (LuxSE) and the International Institute of Green Finance (IIGF) in Beijing have teamed up to launch a green bond index family. The family comrprises: the CUFE CNI High Grade Green Bond Index, the CUFE CNI High Grade Unlabeled Green Bond Index and the CUFE CNI High Grade Labeled Green Bond Index. According to the Luxembourg exchange, the three indices will be the first to “provide synchronous quotes between China and Europe”. It added that they will function as both a market benchmark and an investment tool for those interested in Chinese green bonds. LuxSE CEO Robert Scharfe said it’s part of a effort to “bridge the gap between Europe and China, the world’s two largest green bond markets”. Last year, LuxSE launched its green bond platform, which currently hosts more than 110 deals valued at nearly €50bn.The Climate Bonds Initiative has highlighted issues with three green bonds out of China. In its blog last week, the NGO claimed that 30% of the proceeds from Longfor Properties’ RMB1bn green bond will be used for general corporate purposes. The remaining proceeds will finance the development of buildings with at least a two-star certification under national real estate standards – equivalent to a silver rating under LEED. Dongjiang Environment, a Chinese environmental services provider, also issued a RMB1bn green bond. However, CBI points out that some of the proceeds from the bond – which doesn’t have a second-party review – will be used to refinance landfill projects without gas capture storage. The China Development Bank was also called out for identifying “replacing small [coal-fired power stations] with large ones” as an eligible project under its green bond framework. The RMB5bn green bond, which was issued in February, is dedicated to preventing air pollution. PwC provided the external review. All three bonds are in line with China’s national guidelines, but not with international expectations, CBI said, and therefore are excluded from its database.

Nippon Life and Meiji Yasuda have both said they will ramp up their investment on sustainability-focused credit, in yet another move to bolster ESG investment in Japan. The two major life insurers have thrown their weight behind the market, with Maiji Yasuda pledging ¥500bn to sustainability investments and loans, according to Nasdaq. Nippon Life says it will invest ¥200bn in bonds that align with its ESG principles between April and the end of the decade. Last week, Starbucks sold its first yen-denominated sustainability bond, while EDF issued a green samurai deal earlier in the year.

Europe

The European Investment Bank has tapped its 20-year Climate Awareness Bond (CAB) by a further €500m, doubling its size to €1bn. The 2037 notes have a 0.5% coupon and an issue price of 83.440%. “With €500 million November-2037 being the longest ever Euro denominated green bond when issued last September, EIB paved the way for French 22-year syndication earlier this year,” said Andrey Medvedev, Bonds Public-Sector Originator at Commerzbank – a joint manager on the deal. He added that the order book reached more than €650m, excluding joint-lead manager interest, for a €500m deal, including “five returning green investors, on top of a good number of new names”. APG, Donner Reuschel Asset Management and LF Vasternorrland were three of the participants on the transaction, which saw 33% of buyers come from Germany, 32% from France and 13% each from the UK and Netherlands. More than 40% was bought by banks outside the syndicate, followed by asset managers, pension funds and insurance companies. The EIB is co-hosting a green bond forum with the People’s Bank of China tomorrow in Beijing.

Engie has also tapped the green bond market for the second time, with a €1.5bn green bond. The bond has two tranches: a €700m, seven-year offering with a 0.875% coupon, and an €800m, 11-year offering with a 1.5% coupon. To support its ambitious development strategy in renewable energies and energy efficiency, ENGIE issued its second Green Bond of €1.5bn. Proceeds will be used to finance wind, solar and hydroelectric, energy efficiency projects and “natural resources preservation” projects. Vigeo Eiris conducted the second-party review.