SRI Bond: KfW’s €1.5bn five-year Green bond

IFR Review of the Year 2014
3 min read
Philip Wright

KfW’s Green debut set the bar higher for the flourishing SRI sector, trumping other such deals both in terms of size and transparency.

Feeding the love affair with environmentally friendly debt, the supranational upped the size of its July 2019 transaction to €1.5bn from the originally intended €500m–€1bn on the back of a €2.65bn book, making it the largest single-tranche Green bond sold.

The deal also highlighted a shift in KfW’s funding strategy. Until this point, the agency had relied on its green issuer status, as much of its promotional lending businesses are linked to socially responsible projects.

In addition to size, however, the bond issue brought something new to the Green bond universe: transparency and heightened levels of disclosure.

It was the first such deal with an independent third-party assessment of environmental impacts, which will be reviewed by the independent Center for Solar Energy and Hydrogen Research, Baden-Wuerttemberg; while KfW’s Green bond “concept” will be reviewed and evaluated by independent research centre CICERO.

“KfW was able to wait and bring something innovative and additive to the market, instead of bringing something that had already been done,” said a banker.

Proceeds will be used to fund a programme that provides low-interest financing for renewable energy power projects.

The issue followed the trend of previous Green bonds and was priced in line with the issuer’s vanilla curve. It came at 16bp through mid-swaps, in line with guidance of less 15bp area announced by lead managers CA-CIB, Deutsche Bank and SEB.

One lead placed fair value at 16bp through swaps, meaning no new issue premium.

“The structure of the book was impressive. With over 90 investors, we achieved good granularity and small ticket sizes of around €30m,” said Petra Wehlert, head of new issue public bonds at KfW.

Indeed, at just 16.7% allocated to banks and 18.8% to central banks, the Green issue was light on the two groups that usually take large chunks of KfW’s benchmarks.

Not surprisingly, fund managers were very well represented, accounting for over half of the book at 50.3%, while pension funds took 11.1% and corporates 8.1%.

“KfW’s goal was to have everyone involved, both Green investors and its traditional non-Green investor base,” said a syndicate official involved.

“The new Green bond will support the development of the market. With the size, we are able to provide more liquidity to the market and it gave us the opportunity to talk to new investors,” said Horst Seissinger, head of capital markets at KfW.

Indeed, the success of the issue paved the way for a US$1.5bn five-year follow-on offering in October.

“We wanted to take Green bonds out of the niche and into the broader market,” said Wehlert.

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SRI Bond 2014