Green bond round up, Sept 6: Industrial Bank of India, Mitsubishi UFJ, Nya SFF

With the ‘quiet season’ coming to a close, the market looks set for a number of deals in September. As well as transactions from US munis and the National Bank of Abu Dhabi, as reported last month, RI expects there to be green bonds out of India and Japan, as well as more from Europe and the US.

Europe

In Europe, the big news is that the French government plans to issue green bonds. This has been being talked about for a while, but it seems the country may beat Bangladesh – which published documents mulling the idea earlier this year – to the title of ‘first sovereign issuer’. The French state is expected to begin issuing next year, and will use the asset class to raise €3bn each year, via its debt management body, Agence France Tresor.

More immediately, there has been a complicated deal from Swedish property company Fabege and Nya Svensk FastighetsFinansiering (SFF). Nya SFF is a special purpose vehicle created by Fabege and four other property companies, to provide financing. It is managed by an entity called Hansan. Nya SFF has issued a SEK460m (€48.2m) secured green bond under its framework, at a spread of 85 basis points above the 3-month Stibor. Its coupon is 0.3% and it will list on the Nasdaq Stockholm. That bond was bought by institutional investors, and the entire proceeds were subsequently leant by Nya SFF to a subsidiary of Fabege that owns, exclusively, certified energy efficient buildings. Fabege has its own green bond framework, but chose not to tap it in this instance because Nya SFF can offer investors particularly attractive terms, being the only finance company in Sweden that issues secured bonds through a medium-term notes programme, a spokesperson told RI. It also has a higher ‘shadow’ rating than Fabege, at BBB+, compared with BBB-. This is partly because Nya SFF is backed by five companies with property across Europe (each owns 20%), which gives it greater diversification than Fabege itself. Nya SFF performed a similar deal – which was also loaned to Fabege – last November. According to the spokesman, Nya SFF has issued a total of SEK5.1bn of bonds, of which 31% have been green.
 
And there is due to be another property financing green bond in coming days, as German real estate lender Berlin Hyp returns to market under a new green bond programme. The issuer already has an innovative green pfandbrief programme, but has this week begun a roadshow for a conventional green bond under a new dedicated programme, allowing it to sell senior unsecured notes to finance loans for green buildings. This would make it the first issuer to come to market with green bonds across two asset classes, it claims.
 
The two deals come as Standard & Poor’s Global Ratings published a report claiming that the development of the green bond market “is supporting environmentally beneficial strategies in the real estate sector”. Growing demand from tenants for energy-efficient properties dovetails with good pricing in the bond market and investors particularly hungry for green notes to create major potential for the sector, the report continues. Historically, there has been a ‘split incentive’ barrier for the real estate rental space: those living in an energy efficient property make the savings, while it is generally the property owner that makes the capital investment. This has held back growth in retrofits and green investment programmes, but the report claims that the green bond market presents attractive opportunities – both materially and in terms of PR – to both sides. h5. Asia

RI revealed last week that the Industrial Bank of India (IDBI) is preparing to issue its first green bond. According to a document published on the bank’s website, it has created a framework ahead of issuance, outlining appropriate projects for a “green bond portfolio”. Proceeds will be used to lend to new and existing projects that support emission reduction, resource management and sustainable transport, the document said. Eligible renewables sectors include solar, wind, biomass, small hydro (less than 25MW), run-of-the-river hydro and renewables transmission infrastructure. Energy efficiency, energy storage, water and waste management, low-carbon transport and sustainable land use are also identified as eligible categories. Until the proceeds are fully allocated, they will be invested in money market instruments and government securities. The IDBI will reporting annually on its investments under the green bond programme, and this will be assured by an independent assurance firm. A third-party review is also slated, to provide an opinion on the greenness of the transaction. No further details were available. IDBI is a government-owned bank, formerly known as the Industrial Development Bank of India, which became a commercial bank in 2004, but remains the 10th largest development bank in the world.

Also coming to the market for the first time – having acted as a manager a number of green bonds already – is Mitsubishi UFJ Financial Group, which plans to raise up to $3bn to support wind and solar projects. It is understood that the first transaction will be for $500m, with a tenor of seven years. It will be launched this month, targeting international investors.

In China, environmental data company Trucost has partnered with Chinese financial services firm Golden Credit Rating to launch a green bond assessment framework dedicated to assessing the greenness of transactions out of the country. The pair, who announced the venture in May, claim the tool will provide investors with “greater confidence that the projects they are financing will deliver genuine environmental benefits”. Bonds are scored on a scale of 1-5, based on the issuer’s disclosure of their environmental impact (both positive and negative), risk mitigation measures, commitments to impact reporting, and the issuer’s track record in the space. Credit rating agencies are expected to be the primary users, Trucost said, as well as second-party opinion providers and green bond verifiers.

Chinese wind turbine manufacturer Goldwind also returned to market, this time with a RMB1.275bn asset-backed green bond, listed on the Shanghai stock exchange in six tranches.

US

In the US, things remain focused on the muni space, with the Indianapolis Water Authority reported to be set to issue green bonds as part of a $234m fundraising round for wastewater projects. Indiana Finance Authority is also reported to be heading to market with a green bond for water projects.

American Municipal Power has also had a second opinion published on a green bond, which it will use to finance and refinance debt associated with three run-of-river hydro projects with a combined capacity of more than 200MW. AMP is based in Ohio and generates, buys and sells electricity and energy to communities across the US.