Green Bond Review – May 18: Landshypotek Bank issues First Green Covered Bond

    Stockholm (NordSIP) – On Wednesday this week, not only did Landshypotek Bank issue the first green covered bond in SEK, according to Lars Mac Key, who works with sustainable finance at joint-book runner Danske Bank, but it was also the largest green bond issue in SEK ever, with a total issue size of SEK 5.25 billion (approx. €510 million). And as a cherry on top, this issue was priced at yet a higher “greenium” than those we saw recently with other green bonds in the AAA-segment.

    Founded in 1836, Landshypotek Bank focuses on the financing of land and forest, and aims to promote the development of the Swedish countryside. As of end 2017, the bank was owned by 40,000 farmers and foresters accross the country, and the economic surplus that is not reinvested in the bank goes back to its members.

    “It is fun that we as a first player can issue a green covered bond based on Swedish forests. It is unique and completely in line with the Bank’s activities to contribute seriously to a sustainable society based on what people do with their business around the country,” says Martin Kihlberg, Sustainability Manager and Chief Legal Officer at Landshypotek Bank, in a press release (in Swedish).

    Danske Bank has been instrumental in helping Landshypotek Bank to develop its green bond framework since last autumn. This framework allows the bank to issue green bonds to finance three types of projects: sustainable forestry, renewable energy and energy efficient buildings. Given the CO2 absorbing properties of forests, the underlying assets are an ideal candidate for green bonds financing. As showcased by the company, this particular issue is earmarked to finance 320,000 hectars of forest, which corresponds to 2.2 million tons of absorbed CO2 annually.

    Going into the details, the green bond framework allows the bank to finance forests that are either certified by PEFC/FSC (71%) or present a green forest management plan (29%), with a nature conservation action plans for at least 5% of productive area, as well as a target of 5% deciduous trees, which are beneficial to wildlife species and make the forest more resistant in the event of storms. More information about the selection process can be found here.

    When it comes to the issue, Danske shared some of the details that show yet another fast book building, which resulted in a greenium of 6 basis points. As the book opened at 9:30am the guidance was given at MS +29-32 bps, which was just inside Landshypotek Bank’s fair value. Already 40 minutes later, the first update showed a book more than 2x oversubscribed, with an interest of SEK 12 billion. A little less than 2 hours after the book opened, the final terms were set at MS +27 bps, 6 bps through fair value for a total size of SEK 5.25 billion. As a reminder, Kommuninvest which is also AAA-rated issued a green bond in April which was smaller (SEK 3 billion) and priced at a 3 bps greenium.

    According to Mac Key, “a very strong orderbook from high quality green bond accounts supported the largest SEK Green Bond so far.” Most of the issue (almost 80%) went to Swedish investors and almost all (99%) was bought by Nordic investors, with asset managers taking the lead (59%).

    “Covered bonds represent almost 50% of the outstanding bonds in SEK,” Mac Key reminds us. “This first green covered bond showcases that a new segment of the market is available for green bonds. The fast book building and the pricing indicates a high level of interest for these types of issues, and we look forward to seeing many new such opportunities in the near future.”

    Picture © NordSIP

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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