Green Bond Round-up, May 17: Oekom enters debate on Repsol green bond

Germany’s KfW issued the second biggest green bond outside of China last week, selling €2bn of notes in one tranche. The order book reached €3.7bn with more than 80 investors. Half the bond was allocated to central banks, with asset managers and banks taking most of the remaining notes. Notably, almost half (49%) of buyers were based out of Asia, with just 7% coming from Germany. KfW declined to comment on why Asian investors were so present on the deal, but RI understands that it was not driven by the ‘green’ label. KfW’s Head of Capital Markets, Petra Wehlert, said there was “a growing interest from investors for liquidity in the green bond segment” and the bond was issued without incurring a new issue premium. France’s sovereign green bond is the only non-Chinese, single-tranche green bond to top the KfW deal in terms of size.

But the transaction was almost overshadowed by another labelled green deal: oil and gas company Repsol dipped its toe in the water on Tuesday, issuing a €500m deal to finance energy efficiency and low-carbon technologies and becoming the first big fossil fuel company to tap the market. The transaction was clearly a financial success for the issuer, with the order book reaching €3bn. Initial price thoughts for the five-year offering were in the region of 55 basis points above mid-swaps, but the level of demand allowed Repsol to tighten to 35 basis points above. Demand was “much higher” than on Repsol’s last bond in 2015.

A spokesperson for Repsol said this was partly down to the diversified investor base attracted by the green label, but could also be because of market conditions. The deal garnered criticism from some in the responsible investment community and prompted questions about the role of the banks and advisors on the deal. Repsol insists that the deal is green, pointing to the 45% of dedicated SRI investors who bought the notes and saying there was “a very positive reaction from the green investor base”. The bond has a second-party review from Vigeo Eiris. But it prompted criticism in a formal statement from Julia Haake, who heads up sustainable bonds at rival ESG house Oekom. “The issuer must be able to demonstrate that its overall strategy and corporate management meet strict sustainability criteria [in order to receive a review from oekom],” Haake said. “On this basis, oekom research would not have supported the Repsol Green Bond.” But Repsol told RI that “sustainability is embedded in the strategy of the company”, and that it has been working on reducing its emissions for over a decade. It also works on other ESG issues such as biodiversity, health & safety and the protection of indigenous people, the spokesperson said, and was last year named the second best communicator on ESG, after Unilever, in a report by UKSIF and Extel. “As part of this work, we issued a green bond. That was a logical step for us to take considering our background in sustainability.” When asked if Repsol – which already owns 50% of a company dedicated to electric vehicle infrastructure and is involved in promoting biofuels – planned to move towards a lower-carbon energy mix, such as developing a renewable energy business, the spokesperson said: “At the moment we are an oil and gas company. We plan to reduce our greenhouse gas emissions in those operations and evolve into a more gas-based company. Of course, we would like to consider new projects and new possibilities, but so far we remain cautious and we will keep on working business as usual and if there is any window for renewable energy projects, we’ll do so.”Last week, RI reported that some investors feel the green bond does not finance a transition to a cleaner business for Repsol. But Repsol hit back, telling RI: “Make no mistake, anybody in this industry is very aware that reducing emissions from existing technologies is absolutely crucial to any climate strategy – it’s the low hanging fruit that we can deal with now, quickly and efficiently. This is green, whichever way you look at it. That’s not to say that we won’t work on renewable energy in the future too, but don’t rule out emissions reduction as not green. “

“Oekom would not have supported the Repsol green bond”

Oil and gas companies know that better than anyone else.” It also contested criticisms around the speed of the transaction – compared to a “drive by shooting” by one investor. Repsol did not undertake any roadshows ahead of the deal and published its green bond framework and supporting documents the day before the transaction took place, it confirmed, but said it had around 20 one-to-one phone calls with investors on the day of book building, and already has good relationships with its ESG investors. “We issued the bond when we did because of the excellent market conditions at the time,” the firm concluded. “And overall it was an excellent result from our side.”

Europe & Asia

Kommuninvest has issued its third green bond to investors including Affirmative IM Partners, Amundi, Andra AP-fonden (AP2), California State Teachers Retirement System, Praxis Impact Bond Fund and SEB Investment Management. The Swedish municipal financing body sold $500m of four-year notes yesterday. The bond will support local governments in Sweden develop renewables, energy efficiency, public transport and water management in line with its green bond framework. It currently has a loan book of SEK19.4bn ($2.2bn) in eligible green loans. The latest deals means the three largest green bonds out of Sweden have all been issued by Kommuninvest.

KfW followed up its transaction by updating its investment approach for its own liquidity portfolio, in order to achieve a higher impact. It will now use a best in class approach, meaning it will only buy bonds from issuers whose sustainability score is within the top 80% of the relevant sector.

Real estate firm Entra sold a further NOK250m of green bonds last week, at an issue price of 100.147%. It brings its green bond to NOK1bn. Proceeds will be used to finance energy efficient real estate with a minimum certification of ‘excellent’ under the BREEAM standard.

Obvion is also planning its second green bond. The Rabobank subsidiary will sell another securitisation after coming to market with its debut offering last June. The latest deal will pool residential properties into a mortgage-backed security, based on their energy efficiency performance. Dutch properties that fall within the top 15% in relation to energy efficiency will be eligible for inclusion. Moody’s has awarded the bond a GB1 or ‘excellent’ rating.

The Bank of Beijing has reportedly issued a RMB15bn ($2.2bn) green bond to develop green infrastructure in China’s capital. Projects upgrades to sewer systems in the city, the construction of waste infrastructure and the development of wind energy.