Investors ‘value progress’ by Poland as green pioneer returns
Poland’s return to the green bond market this week after a more than six-year hiatus was welcomed by investors as the sovereign advances its climate commitments.
Market participants had been expecting the sovereign to return to the green bond market as early as this week following an update to its green bond framework last week. A global investor call was held on Friday, June 27 to present the updated framework, which is now aligned with ICMA's 2021 Green Bond Principles after the first major update to the framework since Poland inaugurated its green bond programme in 2016.
Poland went live with an intraday dual-tranche offering on Monday, which included a 12-year euro green bond alongside a seven-year conventional trade.
The leads began marketing the 12-year green benchmark and seven-year conventional bond with initial price thoughts of mid-swaps plus 150bp area and 110bp area, respectively. The dual-tranche transaction was later launched with the sovereign taking a combined €3bn – at the upper end of target range – with the July 2037 green bond sized at €1.25bn and the July 2032s at €1.75bn. The bonds were priced at 120bp and 75bp, respectively.
Demand was also skewed to the conventional tranche. Final books reached over €3.2bn for the July 2032s and over €2.7bn for the July 2037 green bond. Orders peaked at over €7.4bn for the two tranches.
Citigroup, Commerzbank, ING and Santander led Poland’s dual-tranche transaction.
Karol Czarnecki, director of the public debt department at Poland’s ministry of finance, said he was not surprised by the bigger demand for the conventional tranche.
“We knew the 12-year would be less attractive than the seven-year, not because of the characteristics of the bond but because of the tenor,” said Czarnecki. “A seven-year is a good range between five and 10 years with a relatively stable demand from investors,” he said. “However, a 12-year does not fit as well for investors as it is not a conventional maturity.”
The leads used Poland’s existing curve for the pricing. For the July 2032s, the sovereign’s 3.125% October 2031s, 2.75% May 2032s and 3.875% February 2033s were used as comparables, with these bonds marked at plus 69bp and plus 70bp and plus 74bp, respectively. Meanwhile, for the July 2037 green bond, the leads referenced Poland’s 2.375% January 2036s and October 2039s, which were marked at plus 97bp and plus 129bp, respectively.
A banker away from the deal estimated new issue premiums of 5bp for the seven-year and 5bp–10bp for the 12-year green bond. He said this was “very much in line with what I would have expected … hence a good trade".
“Polish spreads were tightening over the last [few] days and weeks, especially those in euros,” said the banker. He added that given Poland’s last benchmark trade was in US dollars, it made sense to do a deal in euros and that “size-wise” the new dual tranche was “very much in line” with what the sovereign usually raises in euros.
A second banker away from the deal agreed with these NIP estimates calling the concessions “minimal”. However, according to Czarnecki, the NIPs were “below 5bp” for each tranche.
Poland became the first ever sovereign in the world to issue a green bond in December 2016 – marginally pipping France to the post – but has not been a frequent issuer in this market since. Before this week, it last sold a green bond in February 2019 with a combined €2bn two-part offering, comprising a €1.5bn 10-year and a €500m 30-year, according to IFR data.
Investors had been calling for the sovereign to return to the green market, but it could not find the extra projects to finance away from the funding received by the European Commission.
“We have been utilising funds from the Recovery and Resilience Facility, of which a substantial part has been dedicated to green projects,” said Czarnecki. “So it took a while to find the projects which have not been funded under the RRF and which meet the criteria for our green bond framework.”
Poland's return to the green bond market was met with a lot of enthusiasm by investors, with around 65% of the green tranche allocated to investors aligned to ICMA’s GBP, according to Czarnecki.
“We definitely value the progress made by Poland,” said Felipe Gordillo, lead expert for green, social and sustainability bonds at Mirova. “It has made an effort to reduce usage of coal and to increase the share of clean energy, with the use of coal down from 73% to 66% from 2023 to 2024. This is the lowest coal use in Poland’s history.”
However, Poland still has a number of areas of improvement to further enhance its green and climate credentials.
“Poland does not have a national climate law or strategy, which is something we look for when we assess and value green bonds,” said Gordillo. “It does not seem a priority for Poland. Today, for obvious reasons, the government’s priority is more on defence rather than climate policy.”