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ESG bond issuance made history last week as supply in some of the bond market’s core sectors outstripped conventional deals for the first time and a deluge of transactions turned screens green in what may come to be seen as a defining week for sustainable finance. “We will look back at this week in a year or even a few months and say that it was one of the turning points for ESG,” said Asif Sherani, head of DCM syndicate for EMEA at HSBC. In the SSA sector, US$12.33bn-equivalent of ESG-labelled deals accounted for 61.7% of US$19.98bn volume across major currencies, according to IFR data. Corporate ESG issuance in euros also rivalled investment-grade corporate bond volume in conventional format, with €5bn of ESG deals making up 48% of €10.35bn of euro-denominated issuance. And in the euro FIG market, excluding covered bonds, all deals were issued in ESG format, albeit in light issuance. Overall, ESG-labelled debt amounted to US$25.86bn over the week, which was 35.9% of US$72.12bn total (excluding emerging markets) across the SSA, investment-grade corporate, FIG and covered bonds in major currencies. The sheer variety and volume of issuance across industries, sectors, and financial products also grabbed attention. Bankers said that it was the first time that ESG debt has neared or outstripped conventional deals in an active market across a broad range of deals. And for some DCM syndicate desks in Europe, ESG bonds clearly outweighed conventional trades. “If we look at ESG bonds, they outsold non-ESG bonds. I’m sure this has happened previously, but not in a large volume week and we’ve not seen so much supply and demand of an ESG nature across the different asset classes before,” Sherani said. Last week’s deals included green bonds from Rabobank and Verizon in the US dollar market, a green Tier 2 from Munich Re, a debut green from Italian insurer Unipol, pharmaceutical company Novartis' debut sustainability-linked bond in the euro market, and fashion house Burberry's debut sustainable bond in sterling. The SSA sector had a particularly busy week. Deals in ESG format outsold conventional issues in the major currencies, according to IFR data, with US$7.5bn accounting for 65% of issuance in US dollars, €2.75bn amounting to 52% of issuance in euros and £1.25bn making up 71% of sterling. For investment-grade corporates, ESG issuance in euros made up 48% of the total in euros, although the overall proportion of ESG debt was considerably lower - 25% of US$28.8bn - when activity in the larger US dollar as well as the sterling markets is added in. Excluding covered bonds, all the €3.5bn deals issued in the euro FIG market were ESG-labelled, though that drops to a still-impressive 47% after including covered bonds in the week's total euro FIG volume of €9.5bn. STRONG SEPTEMBER The busy week meant more than US$55bn of green, social and sustainable bond issuance was issued in the first three weeks of September - which taken together was a fifth of 2019’s US$275bn full-year supply of new issuance, according to Citigroup. Green bond volume has increased strongly in September, with US$41bn of issuance from 67 deals by the end of the week, up from US$25bn and 45 deals in August and US$36bn in July, which is typically a more active month. "It's been amazing to see the volume of green deals hitting the market. Last week was one of the biggest weeks we've ever seen in terms of green bond issuance,” said Philip Brown, head of green and sustainable financing at Citigroup. “It was just extraordinary, every time you looked up, another new issue bond on the screen was labelled green.” There was ESG issuance in more niche markets too, such as renminbi, as Bank of China brought Asia’s first blue bond to fund sustainable marine projects, and Vasakronan and Kungsleden issued green bonds in Swedish krona. Many deals priced at incredibly tight levels due to the broader market backdrop and also the growth of ESG funds. ESG bond funds have seen net inflows of U

BON

6 min read

Americas, EMEA

Tessa Walsh

People & Markets

London banks put brakes on return to office

Banks in London have halted or reversed their return-to-office plans after a U-turn in UK government advice, making a more substantial return unlikely this year. HSBC, Deutsche Bank, Citigroup, Barclays, UBS, Goldman Sachs and others have paused plans to return more staff to offices in Britain in the coming weeks, although at most firms individuals still have the option to go in if they can work more effectively there. Bank sources said there were limited numbers of staff back in offices, so there will not be a big shift in practice - but it will stall a larger return planned, which was expected to accelerate in October. "This hasn't officially been said, but the implication now is that a big return to office won't be happening this year," a person at one of the major banks said. UK Prime Minister Boris Johnson on Tuesday told people to work from home where possible as part of measures to tackle a fast-spreading second wave of Covid-19. Since late August, the government had been encouraging workers to return to offices to try to limit economic damage. Bank staff in London had slowly been returning to the offices, and there had been a noticeable increase at the start of September when children returned to school. But it was still a limited number and varied by bank. About 30% of Goldman's London staff were working in the office, or around 2,000 people, but at HSBC there were only about 300 staff in its main London headquarters out of its 8,000 capacity. HSBC had set strict criteria to step up the return to offices, including the infection rate and transport system, and the latest guidelines pushed that timetable back. "We will pause any further consideration of 'phase one' teams returning to offices," HSBC told staff in a memo, seen by IFR. It said critical workers would continue to work in branches and offices, but it was pausing pilot tests for one-off events, such as strategy sessions or planning days, "until conditions improve". Deutsche Bank and others put the brakes on too. "Following the UK government’s announcement last night, we have taken the decision to suspend our plans to return more employees to the office," Deutsche Bank said. It said the vast majority of staff were "already working successfully from home" and it would keep its London HQ open for staff who need to work from the office. Barclays had planned to implement a "gradual" return to the office in October but that is now expected to be on ice. The bank declined to comment. Citigroup and Goldman told staff their offices remained open for people who needed to use them, but acknowledged the shift in government advice, indicating a pause in staff returning. "If there is a business of personal need for you to work from the office, you may do so subject to ongoing support from your manager. If you can work effectively from home, you should continue to do so," Citi told staff in a memo. There is not expected to be a major shift at the big Swiss banks in London either, after a modest return to the office. UBS and Credit Suisse each had about 10% of staff back in offices - although the potential to increase that next month is now remote. France's Societe Generale said it is also "adapting its position in line with UK government guidance", Reuters reported, without stating the number of workers back in its office.

P&M

4 min read

EMEA

Steve Slater

Bonds

Emerald Isle gets first green bank bond with AIB debut

AIB Group sold Ireland's first green bank bond on Wednesday, pulling in more than €2.1bn of orders for a €1bn Tier 2 transaction and easing any lingering concerns about the primary market's health after a rocky start to the week. The subordinated deal is the first euro bank bond since a bout of equity market turbulence fed through into the credit market on Monday, prompting issuers to put planned deals on hold. "On Tuesday the market was more sideways, but today credit indices are grinding tighter and the tone feels more supportive," said a syndicate banker away from the deal. "Issuers did the right thing in waiting for stability." A DCM banker on the deal said the leads had positive discussions with investors about their cash balances and ability to participate in the primary market. After a positive open on Wednesday they were confident the deal's green element and its high spread and yield would garner a good reception, he said. "It's gone fantastically well as all those things played out and there was a lot of momentum through the bookbuilding," he said. Leads Citigroup, Davy, HSBC, ING, JP Morgan and Morgan Stanley opened books for the May 2031 non-call May 2026 transaction with initial price thoughts of mid-swaps plus 360bp area. Guidance was subsequently set at 335bp/340bp for a maximum €1bn size, with books above €2.5bn, before a €1bn deal was launched at 330bp. The final book stood above €2.1bn. Bankers said the new issue offered a concession of around 5bp over AIB's non-green Tier 2 curve, extrapolating from the bank's 1.875% November 2029 non-call November 2024 Tier 2s, which were bid at around 310bp at Wednesday's open. Additional demand from ESG-focused accounts helped AIB price with a relatively small concession in spite of the recent volatility, bankers said. A second banker at one of the leads said the deal provided further evidence that the pricing benefit enjoyed by green bonds is not limited to smaller, €500m no-grow deals, which until recently had been the norm in the sector. "Now we're also seeing €1bn-sized euro transactions being very well supported by the combination of credit and green investors, with issuers still being able to achieve very attractive pricing," he said. Bankers said other issuers that have been monitoring the market could take confidence from the success of AIB's deal. "It proves investors still want to put their cash to work," said a second syndicate banker. A YEAR IN THE MAKING The deal is the first green bond issued by an Irish bank and inaugurates a green bond framework published by AIB exactly one year ago. The bank has since updated the framework to align it with the EU's sustainable finance taxonomy. Proceeds of the green bonds will be used to finance assets in AIB's €1.7bn green loan portfolio, currently filled with loans relating to green commercial buildings and renewable energy projects and concentrated in Ireland and the UK. The framework also allows for the inclusion of green residential buildings. The deal is only the second green Tier 2 issued by a bank in Europe, excluding Turkey. The Netherlands' de Volksbank sold the first, a €500m deal in July. AIB opted for green Tier 2 over the much more established green senior unsecured format because it is focussed on optimising its capital structure. All its public deals over the last year have been in subordinated format. Prior to the new issue, AIB was €275m short of its optimal Tier 2 ratio, including Pillar 2 Requirements. But it also has a €750m 4.125% Tier 2 coming up for call on November 26. Thanks to the new €1bn issue, AIB will be left with an optimal level of Tier 2 if the 4.125% deal is called. AIB's domestic rival Bank of Ireland is also set to join the green bond market having unveiled a frameworkin early September.

BON

4 min read

EMEA

Tom Revell

Bonds

Emerald Isle gets first green bank bond with AIB debut

BON

4 min read

EMEA

Tom Revell

Bonds

Diageo increases across the lines

Diageo breathed life into a rejuvenated investment-grade corporate market on Wednesday as it tackled a dual-currency trade and upsized both legs, while Medtronic promises a slug of issuance to cap the week. "Diageo looks pretty good from the outside. Similar to the US dollar trades yesterday, I think they probably did slightly better than they would have expected," said a banker away. "I think they'll be particularly pleased with the sterling given their last one was a bit lacklustre." Diageo appointed Barclays, Morgan Stanley, NatWest Markets, RBC, Santander and Standard Chartered for its two-parter, aping an approach it took in March by tapping both sterling and euros. This time around the drinks and spirits group targeted a £300m size with a March 2033 bond, pushing out beyond the £300m March 2029 it placed several months back. IPTs were 115bp area over Gilts, with a second banker away seeing fair value around 90bp. CreditSights analysts saw value down to around Gilts plus 95bp, while noting Brexit risk around the name. "Management has been relatively sanguine about the risk, though, and does not believe there will be a material direct financial impact to the company whether there is a negotiated exit or a no-deal scenario," said CreditSights. Diageo landed an upsized £400m at 100bp. Demand at the tight end of guidance was over £950m. On the euro side, Diageo began marketing an expected €500m Sep 2028 via Dutch entity Diageo Capital BV at swaps plus 75bp-80bp. CreditSights said the issuing vehicle should mean the bonds are ECB eligible, unlike the euro bonds issued in the transaction earlier this year by UK-domiciled Diageo Finance. As part of that deal, Diageo sold a €750m March 2027 at 200bp, demonstrating how spreads have shifted over the course of the year. The 2027s are bid at 43bp, according to Refinitiv Eikon data. CreditSights said the IPTs offered a pick-up of around 40bp versus the 2027s, and that they would be buyers down to around swaps plus 45bp. Diageo landed near to that level, setting final terms for a €700m trade at 50bp. Demand topped €2.2bn at the tight end of guidance. THE JUMBO RETURNS The euro market can look forward to another jumbo trade from Medtronic. The US medical technology company (A3/A), which last year made two big trips into euros with €7bn and €5bn multi-tranche efforts, is preparing five, eight, 12, 20 and 30-year fixed-rate SEC-registered bonds and could hit screens as early as Thursday. The second banker is assuming the issuer will print €4bn-€5bn. He saw fair value for the various tranches from swaps plus 45bp at the short end to 155bp for the 30-year. Reverse Yankees have been scarce this year as US corporates have prioritised the dollar market given the pricing available to them, although last week saw Mondelez, Coca-Cola and Digital Realty all print euros. Issuance in 2020 has been principally driven by companies with strategic requirements for euros. Europe provides over 20% of Medtronic's annual revenues, according to an investor presentation. "Euros have become more attractive these days again, certainly at the long-end I would say, versus the rather unattractive levels relatively speaking we have seen over the past few months," said a third banker. "Coca-Cola also came at relatively interesting levels in euros last week, although still a bit wider versus dollars." Also in euros, Avinor has appointed banks for a no-grow €500m 10-year. STERLING GETS REALTY Sterling saw further activity on Wednesday through Realty Income (A3/A-), which was looking to repay sterling borrowings under a US$3bn revolving credit facility, settle an outstanding sterling/US dollar FX swap arrangement, and potentially fund investment opportunities. The company began marketing a Dec 2030 benchmark at 170bp area over Gilts, bringing pricing in to a final 150bp. Pre-reconciled books for the £400m trade at launch were over £1.2bn. Realty Income is structured as a REIT, providing stockholders with monthly divide

BON

4 min read

Americas, EMEA

Robert Hogg

Bonds

Chipmaker TSMC sets guidance for US$3bn bonds

Taiwan Semiconductor Manufacturing Co, rated Aa3/AA– (Moody's/S&P), is offering US dollar benchmark 144A/Reg S bonds in three tranches. A five-year tranche is shown at initial guidance of Treasuries plus 80bp area, a seven-year at 90bp area, and a 10-year at 110bp area. The Taiwan-based contract chipmaker earlier indicated that the offering could be up to US$3bn in size. TSMC Global, a wholly owned subsidiary of the company, will issue the proposed bonds with a guarantee from TSMC. The senior unsecured bonds are expected to be rated Aa3/AA– (Moody's/S&P). Goldman Sachs is sole global coordinator. It is also joint bookrunner with JP Morgan and Morgan Stanley. Credit Agricole and Citigroup are co-managers. In May, TSMC announced it would invest US$12bn to build a semiconductor fabrication plant in Arizona. It already has a manufacturing facility in the state of Washington and design centres in Texas and California.

BON

Quick read

Global

Bonds

Diageo increases across the lines

BON

4 min read

Americas, EMEA

Robert Hogg

Equities

SCG Packaging launches up to Bt39bn IPO

Thailand’s SCG Packaging has launched a Bt38bn–Bt39bn (US$1.2bn-$1.3bn) IPO in a Bt33.50–Bt35 price range, according to a term-sheet. Around 1.13bn primary shares or 27% of the expanded capital are on offer with an overallotment option of 169m shares. Books open tomorrow and close on October 5. The shares are due to start trading on the Stock Exchange of Thailand on October 22. The top of the price range implies a price to earnings multiple of 19 for 2021. Cornerstone investors are buying 677m shares. The rest of the shares will be sold to international and local institutions, retail investors, shareholders of parent company Siam Cement and SCG Packaging. The international cornerstone investors are Avanda Investment (27m shares), NTAsian Discovery Master Fund (23m), Tudor Systematic Tactical Trading (13m) and Ghisallo Master Fund (13m). The domestic cornerstone investors are BBL Asset Management (135m shares), Kasikorn AM (135m), Siam Commercial Bank AM (81m), MFC AM (63m), Tisco AM (42m), Krung Thai AM (37m), UOB AM (26m), Thanachat (25m), Thai Life (13m), Aberdeen (11m), Phatra (8m), One AM (8m), Principal AM (8m) and Muang Thai Life (8m). There is a 180-day lock-up on Siam Cement. Bualuang, Morgan Stanley, SCB Securities and UBS are the joint global coordinators.

EQY

Quick read

Emerging Markets, Asia

Anuradha Subramanyan

Bonds

Chipmaker TSMC sets guidance for US$3bn bonds

BON

Quick read

Global

Bonds

UPDATE 1-BofA's US$2bn ESG bond to tackle Black, Hispanic inequality

Updates headline and adds description of the bond Bank of America priced a US$2bn sustainability bond on Tuesday that will be used to help reduce inequalities for Black and Hispanic communities in the United States as well as invest in green projects. The use of proceeds is believed to be a first of its kind in the capital markets, where Bank of America has taken a leading role in both the size and scope of the developing market for US-dollar ESG bonds, CreditSights noted in a report. Specifically, use of proceeds as described in the preliminary pricing supplement will be used toward "eligible Social Assets that seek to help reduce inequalities for Black and Hispanic communities in the United States and Eligible Green Assets that promote a transition to a low-carbon economy." Described as an Equality Progress Sustainability Bond by the bank during an investor presentation, the deal is Bank of America's first to use proceeds for both social and green purposes. Bank of America's US$2bn 0.981% five-year non-call four-year fixed-to-float senior unsecured note priced at 72bp over Treasuries, which is the tight end of guidance at T+75bp (+/-3bp) and well inside initial price thoughts of T+90bp area. At a final spread of 72bp over the bonds offered some 2bp of new issue concession over Bank of America's 2.456% 2025s that were last seen trading around 70bp over, according to IFR calculations. The bond also offered some spread pickup over JP Morgan's 2.301% 2025s that were trading around 67bp over Treasuries this week, according to MarketAxess data. JP Morgan just last week priced its inaugural green bond. The US$1bn 0.653% four-year non-call three priced at 48bp over but was trading wider on Tuesday at 50bp over, according to MarketAxess data. USE OF PROCEEDS This is Bank of America's third bond with social proceeds ever and its second of the year adding to a handful of other green bond deals it has priced in recent years. In May, BofA issued a US$1bn four-year social bond that was the first of its kind to provide loans and lines of credit to BofA's commercial banking clients in order to fund treatment of Covid-19 patients at non-profit hospitals and skilled nursing facilities, according to the SEC filing. Likewise, Tuesday's bond is believed to be the first to target Black and Hispanic communities through a variety of financial products designed to help business owners and families. Funds will go toward mortgage lending and construction loans for affordable housing projects in Black and Hispanic communities under the Community Reinvestment Act, according to an SEC filing. Eligible social projects also include financing for medical professionals looking to establish practices in Black and Hispanic communities, supply chain finance facilities to businesses identified as minority-owned business enterprises, and deposits/equity investments in minority depository institutions with a commitment to maintain the deposits for a minimum period of three years. The ESG offering also sets funds aside for Green projects, including financing, leasing and investments for the construction and operation of wind and solar generation projects as well as zero direct emissions vehicles and electric charging stations. The new bond came to the market the same day The World Economic Forum released a set of universal environmental, social and governance metrics that are designed to provide a common set of existing disclosures for corporate reporting systems, according to a press release. Brian Moynihan, CEO of Bank of America, also serves as Chairman of the Economic Forum's International Business Council, which led the initiative. "Companies have to deliver great returns for shareholders and address important societal priorities," said Moynihan in the release. "These metrics will provide clarity to investors and other stakeholders and ensure capital is aligning to drive progress on the sustainable development goals. That's stakeholder capitalism in action."

BON

4 min read

Americas, EMEA

William Hoffman

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Bellwether

On yer bike

BANKS ARE TRYING to lure staff back to the office with various perks. Goldman is offering free food at its in-house canteen, while UBS has taken things up a gear by purchasing bikes to enable its London bankers to visit clients without having to use public transport. The bank has purchased 10 Bromptons – a folding variety of bike that can cost as much as £3,000 – and told staff in a memo that it hopes to see “many” using them. It’s great PR, but it will be interesting to see how many of its investment bankers decide to ride the bikes, which are sponsored by Neo, UBS’s cross-asset research business. Bromptons may be posh, but they’re still bicycles. Whatever happened to the Flaming Ferraris? Forget long lunches and sports cars, for the M&A rainmaker in 2020 it’s all about grabbing a free butty at Goldman before pedalling over to Mayfair to be ridiculed by a hedge fund. MAYBE THE WAY to spark interest is to make it competitive. Bellwether would like to propose a race around Broadgate Circle between UBS CEO Sergio Ermotti, riding a Neo Brompton, and William Vereker, the new chairman of Santander UK and formerly head of investment banking at UBS, riding one of London’s ubiquitous Santander cycle-hire bikes. Perhaps Andrea Orcel – Vereker’s old boss at UBS whose ego suffered a serious puncture after his bid to become CEO of Santander fell through, but only after he had told Ermotti he was on his bike – could oversee the contest. STAYING WITH UBS, never mind yoga or learning a foreign language, it’s quite clear what Axel Weber’s been doing during lockdown. The UBS chairman has come up with the crazy idea of merging with arch-rival Credit Suisse. Virtually no-one in Zurich takes the idea seriously and most reckon it’s a wheeze that will be filed under the same category as last year’s feeble attempt at a combination between Deutsche Bank and Commerzbank. “This way it shows they’ve tried to do something domestically so they can hook up with a foreign bank instead,” said a mole. But Bellwether would love to see the merger happen. Earlier this month Swiss regulator Finma opened enforcement proceedings against Credit Suisse in the context of the “observation matter” – a wonderful euphemism for Credit Suisse’s decision to hire a surveillance company to spy on its former head of wealth management Iqbal Khan after he quit for UBS. Imagine a world where Credit Suisse merges with its arch-rival and is then fined by Finma. Under that scenario UBS could end up having to pay half, and Khan could end up with an even bigger empire. THANKFULLY, NEWS HAS reached Bellwether that the alpha-male banking archetype is not completely dead. Spies on Bishopsgate say the head of investment banking at one London-based firm copped a speeding ticket last week on his first day back at the office. Rather than take public transport, he’d gone all Marlon Brando and dusted off an old motorcycle he hadn’t ridden for more than a decade.

IFR 2351 - 19 Sep - 25 Sep

More Bellwether

IFR Events

IFR hosts a comprehensive programme of conferences, seminars and roundtables throughout the year, providing authoritative insight into the trends and outlooks for specific regions and asset classes.

View Events Calendar

IFR Digital Edition

Access a digital replica of IFR's print magazine, updated each Friday. Plus regular Special Reports and Roundtables, covering industry themes and trends.

Latest Digital Edition

Bellwether

On yer bike

IFR 2351 - 19 Sep - 25 Sep

More Bellwether

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