GREEN CAPITAL MARKETS issuance probably got close to US$200bn in 2017, if you throw in everything plus the kitchen sink and include Green-labelled international and domestic bonds, US tax-exempt munis, private placements, ABS/MBS, covered bonds, Schuldscheine, syndicated loans, and financings that had only partial Green use-of-proceeds.
That’s a fabulous achievement. But one thing is mystifying: whatever happened to the bus-load of sovereign Green bonds that was supposed to have been on the road to market last year? Governments were conspicuously absent from the market in 2017 and ended up turning the hottest year on record for Green bonds into the year of the sovereign Green bust.
What we got was just a little, well, weird. That’s a shame, since adding a base of sovereigns – particularly those from developed countries – will deepen and expand the Green bond market’s solidity, stature and credibility.
THINK ABOUT THE motley group of sovereigns in 2017 that were said to be lining up advisers and underwriters amid the clamour to establish Green bond frameworks and start eating into onerous COP-21 targets.
Bangladesh, Belgium, Brazil, China, France, Ghana, India, Indonesia, Ireland, Italy, Kenya, Luxembourg, Morocco, Nigeria, the Philippines, Portugal, South Africa and Sweden were all talked up at one point or another. I’m sure I’m missing some. Many are or were actively considering Green bond options or indeed are in various stages of dialogue with banks.
A shadow pipeline was starting to build a year ago and some of the more excitable corners of the sustainable finance ecosystem were forecasting 10 or more sovereign issuers either launching into formal marketing or actually printing trades in 2017. But rather than hitting warp speed, the sovereign segment of the market ended up being a case of over-promise crushed by colossal under-delivery.
FAIR PLAY, WE got France. And credit where credit is due, l’Hexagone certainly had the wow factor as its initial €7bn Green blockbuster was reopened twice to end the year within shouting distance of €10bn. That’s impressive.
But beyond that, we got … err …Fiji and Nigeria – raising less than US$50m between them in domestic currency issues that were all but invisible to the broader market. After the grandiloquent commitments made in Paris in 2015, this wasn’t supposed to be the playbook.
Let’s be fair: Fiji and Nigeria both deserve credit for getting their debuts done. The Pacific island nation became the first EM sovereign and only the third in the world to issue Green bonds. But in the grand scheme of things, accepting F$40m (US$19.9m) of bids in a domestic five and 13-year dual-tranche auction in November was a sideshow.
As an aside and before I move on, yes it was F$40m. Can everyone – including the World Bank, CBI, data providers and industry watchers – stop talking about it as a F$100m trade? For the record, Fiji’s Reserve Bank said it received interest of F$87.91m, heavily weighted towards the shorter piece, and accepted F$20m of bids in each line. Additional issues in coming months will take issuance to the programme size of F$100m.
IT’S HARD TO KNOW what to make of Nigeria’s five-year domestic Green note issue that was priced days before Christmas via Chapel Hill Denham. The environment ministry definitely deserves accolades for getting the country’s Green bond framework in place. But the plaudits kind of stop there.
Getting the bonds to the finish line was said to have been a tortuous and convoluted process wracked by inter-ministerial politics, turf battles, budget issues and a lack of viable project data. Given all the hoopla that started in 2016 when Amina Mohammed, now deputy secretary-general of the UN, tabled the Green bond project when she was Nigeria’s environment minister, the debut was a disappointment.
Coming out with a massively delayed and oddly timed “pilot” issue of just N10.69bn (US$29.7m) was a disappointment when the initial plan had been a N20bn debut early in the year with a N25bn follow-up before year-end. In a market that was hot, hot, hot all year, the fact that investor demand barely covered the tiny issue was embarrassing.
On the basis that Nigeria’s entire Green bond programme is not much more than US$400m-equivalent, that seems like a lot of effort for a damp-squib debut. Assigning proceeds predominantly to power federal universities and teaching hospitals, with tiny amounts going to reforestation and providing power to a few disconnected communities, was woefully lacking in ambition for a major world producer of crude oil and gas.
In its Green Bond Highlights 2017, the Climate Bonds Initiative listed “more sovereign issuance from developed and emerging economies as more governments look to finance climate-resilient infrastructure and achieve their NDC commitments” among its seven trends to watch for in 2018. “The pioneers from 2016 and 2017 will be case studies to encourage new entrants,” the organisation said.
A trend to watch? Sure. But case studies? France, definitely. But I’d stop there.
Will 2018 be any better? Perhaps. Indonesia has mandated banks and its chunky debut Green sukuk issue is expected imminently. Poland is expected to tap the market with its second Green issue, potentially in the first quarter, while Sweden is a hot ticket to establish its credentials soon.
Belgium entered 2018 as the early hope for the Green bond market. Brussels dashed those hopes, however, when it opted to kick off its funding year with a €5bn conventional 10-year syndicated OLO on January 16.
But in the official summary of its January benchmark, Belgium kept the excitement simmering, saying: “The Treasury expects to launch one further new fixed-rate OLO benchmark during 2018, which will be issued as a Green OLO in the 15 to 20-year area”.
We’ll see.
