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Ontario to issue second C$500m green bond this quarter to fund clean transport

Meanwhile, Moody’s gives further details of its new green bond rating service

Ontario, which in October 2014 became the first Canadian province to issue a green bond, is following up with a second sale, expected to be at least C$500m (€312m) in size and to happen this quarter.

In a statement, Ontario’s Finance Ministry said that as with its first green bond, proceeds from this security would be used to fund environmentally friendly infrastructure projects. These include clean transportation, energy efficiency, renewables, forestry, agriculture, land management and climate adaptation.

Specifically, some of the proceeds will go to finance the Eglinton Crosstown light rail line in Toronto. The C$5.3bn fully electric line is scheduled for completion in 2021 and is receiving a total of C$402m in funds from Ontario’s green bond programme.

Other transportation projects funded by the programme are a bus network for the York region in the province as well as a regional train line. The projects are to get C$100m and C$200m, respectively. Ontario’s green bonds are assured by CICERO (Center for International Climate and Environmental Research – Oslo).

“Good environmental policy is good economic policy. The popularity of our first release of green bonds demonstrated that investors are eager to support environmentally friendly infrastructure projects,” said Ontario Finance Minister Charles Sousa, adding that the bonds helped grow the local economy and create jobs.Ontario’s first green bond, a four-year ‘AAA’-rated security with a coupon, or interest rate, of 1.75%, raised C$500m for the province. It was almost five times oversubscribed by investors in Canada, the US, Europe and Asia, the ministry said.

For its latest green bond, the Financial Post reported that Ontario’s finance ministry had hired five banks as underwriters. They include BMO Capital Markets, RBC Capital Markets and TD Securities of Canada as well as Bank of America of the US and HSBC of the UK.

In related news, US rating agency Moody’s discussed its new “Green Bond Assessment (GBA)” in a teleconference yesterday. According to Henry Shilling, Senior Vice President, the GBA will entail scoring the greenness of such bonds on a scale of “1 to 5,” with “1” the lowest rating and “5” the highest. Key criteria to be used in scoring include the use of proceeds and the disclosure thereof.

Asked by BlackRock, which supports common standards for green bonds, whether Moody’s would evaluate the greenness of outstanding debt, Shilling said no. “The GBA is strictly a new offering for those issuers who wish to take advantage of it.” Moody’s has invited market players to comment on its proposed GBA by February 12. During the call, Shilling also said he expects green bond issuance in 2016 to reach $100bn, in part because of momentum created by the Paris climate deal.