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    EU Takes Over the Green Bond Market

    Stockholm (NordSIP) -Following its take over of the social bonds market in the autumn of 2020, and on the heels of the recent announcement of the NextGenerationEU Green Bond Framework, the European Commission issued the first such bond on Tuesday, October 12th.

    This first NextGenerationEU green bond matures on 4 February 2037 and is worth €12 billion in funds to be used exclusively for green and sustainable investments across the EU. This represents the world’s largest green bond issuance ever.

    The 15-year bond carries a coupon of 0.40% and was priced at a re-offer yield of 0.453% providing a spread of –8 bps to mid-swaps, which is equivalent to 31.6 bps over the 15-year Bund due in May 2036 and to -4.6 bps compared to the 15-year OAT due in May 2036. Demand was very strong, pushing the bond to be over 11 times oversubscribed as the final order book swell to over €135 billion, the largest green bond orderbook ever in global capital markets.

    Geographically, investors domiciled in the UK were dominant, purchasing 29% of the bond, followed by those from the Nordics (12%), Benelux (11%), France (11%), Germany (10%), Italy (9%), Portugal and Spain (4%), the rest of Europe (7%), Asia (3%) and the rest of the world (4%). Secorally, Fund Managers purchased 39% of the bonds, followed by Bank Treasuries (23%), Insurance and Pension funds (16%), Central Banks and Official institutions (13%), Bank (8%) and Hedge Funds (1%).

    The joint lead managers of this transaction were Bank of America Securities Europe S.A., Credit Agricole Corporate and Investment Bank S.A., Deutsche Bank AG, Nomura Financial Products Europe GmbH, TD Securities. Co-leads were Danske Bank A/S, Intesa Sanpaolo S.p.A. and Banco Santander S.A.

    With the strong oversubscription rate and excellent pricing conditions today’s issuance represents a promising start to the NextGenerationEU green bond programme of up to €250 billion by end-2026.

    ”Today’s issuance is a strong start for the NextGenerationEU green bond programme. Set to turn the EU into the world’s biggest green bond issuer, it is a powerful signal of the EU’s commitment to sustainability. Our future is green and it is extremely important that we seize the opportunity to clearly show to investors that their funds will be used to finance a sustainable European recovery,” said EU Commissioner in charge of Budget and Administration, Johannes Hahn.

    The framework, complies with the International Capital Market Association (ICMA)’s Green Bond Principles market standard.

    The Commission’s reporting on the use of proceeds and on the environmental impact of the expenditure financed by NextGenerationEU Green Bonds will be subject to independent review. The funds from the NextGenerationEU green bond issuances will be used to finance green and sustainable expenditure under the Recovery and Resilience Facility.

    A minimum of 37% of every Recovery and Resilience Plan has to be devoted to the green transition, with many Member States striving to do more. Eligible investments from the already approved plans include a research platform for energy transition in Belgium, or the construction of wind power plants on land in Lithuania.

     

    Image courtesy of © EU
    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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