Hesse maxes out green bond in sunny market
Fresh from wooing investors last week, the State of Hesse was able to fund maximum size from its new green bond in a buoyant euro market.
"The market is in a very good shape overall," said one senior banker away from Tuesday's SSA supply, "that's what's supporting things. There's still enough cash floating around. That's especially true for the five to 10-year space, where there's good demand from bank treasuries rolling over their maturing bonds . . . and for longer-dated bonds, you're still in a quite interesting rates scenario where interest rates are high."
"Euros look very strong," said a second banker, who was also away from the deals.
The sunny conditions saw Hesse build a €6bn book of non-joint lead manager orders for its €1.5bn 10-year green bond, interest that raised eyebrows in the market. Commenting even when the book was €1bn lighter earlier in the day, the first banker said: "A €5bn order book on a 10-year Laender trade – we haven't heard that a lot."
More than 150 accounts put in orders, according to the deal results, including some first-time Hesse buyers. ESG accounts got 70% of the bond. International participation (Laender deals are often domestic affairs) included European buyers outside Germany and Asia-based investors, the overall details representing a strong result for a German state issuer.
The banker added, however, that "the pricing was [calibrated] to have a good book and a good transaction size".
That would explain the bond's exceptional tightening. Credit Agricole, Danske Bank, DekaBank, Deutsche Bank, ING and LBBW brought the bond in 3bp to land it at 40bp over mid-swaps. "To get 3bp of tightening on a Laender trade – I can't remember the last time I saw that," the second banker said.
Plus 40bp was through fair value, a lead on the deal said, implying a greenium of around 1bp. The first banker said it was around flat to fair value.
The €1.5bn Hesse raised was the maximum it could take from the syndication, the lead said, with the eligible green projects it has on the books. That size puts it among the top five biggest ESG-labelled euro trades from regional issuers, IFR data show. The biggest are a pair of €2bn 10-year North Rhine-Westphalia sustainability bonds, one done in mid-2022 and the other a year later.
Hesse's deal followed investor calls it conducted the week before, which, among other things, familiarised accounts with its new green bond framework.
"The ground had been prepared well," the lead said.
The deal was the result of more than a year of work, according to the head of treasury at Hesse's ministry of finance, Alexander Labermeier. Most of that time was spent constructing the state's green bond framework, selecting the eligible green projects and securing a second-party ESG opinion, he said.
Hesse expects to appear in the green bond market every two years, Labermeier told IFR. That gap between issuance is designed to ensure it has enough eligible green expenditures to be able to issue green benchmarks of at least €1bn.
ESM proves popular
The same day as Hesse's green deal, the European Stability Mechanism collected €20bn of interest for its €2bn no-grow November 2028 bond, putting it among the supranational agency's best bid benchmarks historically.
Like the Hesse bond, ESM's deal came in 3bp. HSBC, Morgan Stanley and UniCredit priced it at 12bp over mid-swaps, which was flat to fair value, according to the second banker.
ESM's deal was shorter than had been expected by some bankers, who had predicted it would come with a bond in the five to seven-year bucket.
But the first banker, who had anticipated a product in the short end, said the three-year tenor was in line with his expectations.