SYDNEY: Australia and New Zealand Banking Group received a robust response to its inaugural Green offering on Wednesday with a A$600m (US$458m) five-year bond, but some observers said the fledgling market might struggle to broaden greatly in the absence of a related premium.
There was nothing wrong with the execution of the deal as the Aa2/AA-/AA- rated ANZ combined the biggest such domestic issuance with the year’s largest senior unsecured fixed-income bank trade, green or otherwise, in Australian dollars.
Australia’s state-owned Clean Energy Finance Corporation provided a cornerstone commitment of up to A$75m for the bond, but this was not required as 46 private sector investors made for an order book of A$725m.
Around a fifth of these investors (mainly councils, middle market and ethical funds) purchased ANZ bonds for the first time, buying about 7% of the deal.
Australian accounts were allocated 92% of the bonds and Asia 8%. Asset managers took 56%, insurance companies 21%, middle market 7%, banks 3%, local councils 3%, central banks 3%, state governments 3% and private banks 1%.
ANZ’s 3.25% June 3 2020s priced at 99.384 for a yield of 3.385%, equivalent to 80bp over asset swaps, equalling the three-month plus 80bp margin for identically rated National Australia Bank’s A$1.9bn floating-rate sale a day earlier.
Ultimately, however, the Green market may need investors to pay a “good cause” premium over conventional bonds to persuade more issuers to access the sector and help it take off.
In a report issued on the day of ANZ’s debut, Moody’s senior vice president Falk Frey cited the lack of pricing benefits over standard bonds to explain this year’s drop in the issuance levels of companies and municipalities, which sold 46% of 2014’s US$37bn total.
Nevertheless, Frey predicts further overall growth in the global Green bond market from 2015’s expected US$100bn supply as more issuers emerge, particularly in countries like China and India, which are edging towards more eco-friendly economies.
Australia has lagged offshore markets as ANZ is only the fourth Australian dollar Green or Climate bond issuer and the second bank after NAB, which priced a 4.0% A$300m seven-year MTN on December 4 2014 to yield 100bp wide of swaps.
The other two trades were from Triple A rated sovereign, supranational and agencies. International Bank for Reconstruction and Development (part of the World Bank Group) was the first to print a Green Kangaroo on April 16 last year with a 3.5% A$300m five-year bond and Germany’s KfW followed on March 25 this year with a A$600m 2.4% 5.25-year sale.
An Australian origination manager said he had been working closely with one potential corporate issuer and pointed out that local property group Stockland, rated A- (S&P), sold a 300m (US$327m) seven-year Green Eurobond last October.
“For many Australian corporations, Green bonds are a good fit because they have natural green assets that can be ring-fenced for these instruments,” he said.
“As far as pricing is concerned, I do not expect a differential to develop between Green and standard bonds with the growth of the Green market likely to happen naturally as more investors participate in a widening array of Green-specific projects.”
ANZ worked with third-party verifier Ernst & Young and the Climate Bonds Initiative to identify A$1.1bn of ANZ loans made to wind farms, solar energy firms and green buildings in Australia, New Zealand and parts of Asia that met the CBI’s Green criteria.
Proceeds from the bond will finance this portfolio of loans and will also be allocated for investment in future green projects, potentially including geothermal power and fuel efficient transport sectors.
