Buoyant Demand for Landshypotek Bank Green Bonds

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    Stockholm (NordSIP) – Although there were well documented concerns that the green bond market would be hurt by the COVID-19 pandemic, sustainable investors have remained faithful to their pledges to aid the management of the climate transition. As a matter of fact, not only has the popularity of these investments endured, it has thrived.

    The recent success of green bonds is well illustrated by the buoyant demand for Landshypotek and Munifin’s recent forays into the market. Encouraged by these bond issuances and by good news regarding COVID-19, market conditions appear to be encouraging even more issuers to come to the market in the coming weeks.

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    Landshypotek Bank Green Bond

    Founded in 1836, Landshypotek Bank is an institution owned by 38,000 farmers and foresters across Sweden which finances projects in the Swedish countryside. Landshypotek Bank issued it’s inaugural green bond in 2018. According to its latest green bond impact report, green investment by Landshypotek Bank have absorbed or avoided around 240 tons of CO2 per 1 million Swedish Krona invested invested. Landshypotek Bank Green Bond framework holds a Dark Green shading, the highest shading possible by second opinion provider CICERO Shades of Green.

    On November 9th, Landshypotek Bank issued a SEK2.5 billion five year green bond. The bond was a tap of a fixed rate security maturing in 2025, which pays a 0.615% coupon. Demand from 20 separate investors led orderbooks to swell to SEK6.5 billion, leading the green bond to price at 14 basis points (bps) over mid-swaps, 1 to 3bps below guidance. The 4bps spread over the five-year SEK Benchmark Covered Bonds corresponding to a Greenium of 5bps. Following this tap, the 2025 bond has a total issue outstanding of SEK5.5 billion.

    Geographically, domestic Swedish investors purchased 75% of the securities, followed by Danish (19%), Norwegian (5%) and other (1%) investors. Sectorally, asset managers were dominant, snatching 42% of the green bonds. Insurance and pension funds purchased another 35%, followed by banks (18%) and central banks and official institutions (5%). Danske Bank, DNB Markets and Nordea acted as joint lead managers for this transaction.

    On the occasion of this transaction, Martin Kihlberg (Pictured), sustainability manager at Landshypotek Bank, remarked on the increasing consensus about the connection between green and financial sustainability. Pointing to Landshypotek Bank’s own experience, Kihlberg noted that green bonds contribute to healthy investments for investors, contribute to a better climate and lay the foundation for Landshypotek Bank to be able to keep good interest rates for its customers.

    Munifin’s Green Bond

    At the start of October, Munifin, a Finnish public credit institution focused on funding Finnish municipalities, came to the market with a €500 million ten-year green bond. Munifin’s is owned by Finland’s municipalities (53%), local government pension Keva (31%) and the central government (16%).

    Munifin’s green bond pays no coupon. Demand from 104 investors swelled orderbooks to €3.5 billion, leading the security to be priced at a 101.99 premium, 2 bps over mid-swaps, to yield -0.197%. Geographically, investors from Germany, Austria and Switzerland represented 33% of demand, followed by investors in the Nordics (21%), in the Benelux (10%), Southern Europe (10%), France (9%), the Americas (7%), and other miscellaneous regions (10%). Sectorally, central banks and official institutions purchased a third of all bonds, followed by asset managers and banks who took 30% and 28%, respectively. Pension funds and insurance companies purchased the remaining 9%. This is MuniFin’s third Euro-denominated green bond and fifth green bond across currencies. Danske Bank, Natwest, Nomura and Nordea acted as joint book runners on this transaction.

    Munifin has been offering specialised funding for green projects  that promote the transition to low-carbon and climate resilient growth since 2016. These are long term projects with maturities varying from 5 to 41 years and seek to mitigate or adapt to climate change. MuniFin’s Green Framework is aligned with the Green Bond Principles and has a second opinion with a Medium Green shading from CICERO Shades of Green.

    In the Pipeline

    Following the resolution of the US election and the good news that Pfizer’s COVID-19 vaccine trials resulted in very encouraging rates of successful treatment, stocks are up and market conditions are amenable to new green bond issuance.

    Coming up, green bonds from Heimstaden Bostad, UPM-Kymmene Corporation and Volvofinans Bank are likely to make the news. Heimstaden has mandated Danske Bank, DNB, Nordea and Swedbank as joint bookrunners for possible SEK and NOK transactions with maturities between three and five years, in green and standard bond format, respectively. UPM has mandated BNP Paribas, Citi, JP Morgan and Nordea as joint bookrunners for a euro-denominated eight-year green bond. Lastly, Volvo is in the market to issue a SEK-denominated fixed and floating rate green bonds with maturities of three to five years.

    Image © Landshypotek

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.
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