Green bond round-up, March 28: Singapore to offer grants, first deal out of Middle East

The green bond market has seen some $19bn of issuance in the first quarter of 2017, according to the latest report on the asset class from Bank of America Merrill Lynch. The bank estimates total issuance for the year will hit between $90 and $120bn, based on 30-50% growth in China and 15-30% growth across the rest of the world.

The People’s Bank of China and the European Investment Bank have formed a partnership to harmonise green bond policy and “strengthen the framework for green investment”. The move furthers EIB’s long-standing mission in the green bond market to develop “a common language [to] enhance the confidence” of investors and other market players, by creating “more consistent definitions and methodologies”. China’s Green Finance Committee and the EIB will “examine current classification of green bonds to map and compare respective approaches to green projects eligibility,” they said in a statement. Concrete steps are yet to be decided, but the initiative will address accountability in green finance and how to use green bonds to finance the Paris Agreement. A white paper will be published later in the year outlining the results of the coordination and comparing different reporting techniques in the green bond market. The overall aim is to make it easier to compare different approaches to green bonds, in terms of project selection, third-party reviews, reporting and allocation.

Europe

State-owned French rail company SNCF Reseau has issued the biggest green bond from a company in the country to date. The transport giant, which oversees the French rail network, has sold €1bn of labelled notes in its second green bond deal. Proceeds will fund new and existing green projects that have been undertaken within the past two years across three categories: 1. Maintenance, upgrades and energy efficiency work to the rail network; 2. New infrastructure and extensions to existing railway lines; 3. Biodiversity and natural resource management. SNCF sold its debut green notes at the end of last year in a 15-year, €900m deal which offered a 1% coupon. This time, the tenor is longer at 17 years and the offering has a 1.875% coupon. Like fellow green bond issuer Caisse des Dépôts et Consignations, SNCF is protected against bankruptcy by the French state. French buyers took nearly half the notes, with the remaining being split mainly between investors in the Netherlands, Germany, Southern Europe and the UK. Seventy per cent of participants on the deal were SRI investors. The bond is certified by the Climate Bonds Initiative and has a second-party opinion from Oekom.

LuxFlag, Luxembourg’s non-profit finance labelling agency, has awarded NN Investment Partners a ‘Climate Finance Label’ for its green bond fund. It is the first green bond to have received the label – three other funds have secured it. The fund must be deemed to have at least 75% of assets in mitigation or adaptation of climate change. There must be an impact measurement process in place too.h6. Asia

Singapore is to introduce a green bond subsidy scheme to kick-start its market. Lawrence Wong, Minister for National Development and Second Minister for Finance, said last week that there was potential for the asset class to develop in the country, with some help: “In Singapore, we have a broad community of asset managers and institutional investors on the buy-side, and banks with strong debt-origination capabilities on the sell-side.  So, this puts us in a strong position to support the development of a green bond market,” he said in a speech at a conference hosted by the Investment Management Association of Singapore, adding that “the presence of a green bond market here will add to the breadth and depth of Singapore’s debt market, providing buy-side participants with more investment opportunities, and supporting the growth of ancillary services as well”. MAS acknowledged that green bond issuers faced additional costs to issuance in order to stay in line with expectations around external reviews and reporting. Wong said that in order to counter this the Authority would “introduce a green bond grant scheme this year to incentivise the issuance of green bonds”. The scheme aims to offset up to 100% of the costs of obtaining a second-party review, to a maximum of S$100,000 (€66,000).  

Middle East

The National Bank of Abu Dhabi successfully priced the Middle East’s first green bond yesterday, in its second attempt at tapping the market. The bank failed to get a transaction off the ground last year – because of unattractive terms, according to reports at the time – but others attribute the postponement to its merger with First Gulf Bank. It has now sold $587m of notes with a five-year tenor and a 3% coupon. NBAD initially published its green bond framework
last summer, outlining plans to issue a $500m deal to finance and/or refinance loans for green projects. Eligible categories included renewables, energy efficiency, low-carbon buildings, sustainable waste and water management, clean transport, climate change adaptation and “decarbonising technologies”. At the time, NBAD said proceeds were expected to be allocated to projects in the Middle East, but it was possible other regions could receive some financing through the bond. Vigeo Eiris performed a second-party opinion.

US

BlackRock has partnered with US asset manager Hannon Armstrong’s on its latest Sustainable Yield Bond. Hannon Armstrong sold the $84m offering, which has a green bond assessment from Moody’s, to clients of BlackRock. The deal also uses CarbonCount – a scoring system developed by the Alliance to Save Energy to measure the energy and environmental benefits of assets. Hannon Armstrong has been issuing Sustainable Yield Bonds since 2013, and this its third transaction under the programme. It will finance efficiency and solar projects in schools and government buildings. The 20-year notes carry a 4.35% coupon.