SRI Bond: TSKB's US$300m five-year Green/Sustainable bond

IFR Review of the Year 2016
2 min read
Robert Hogg

Supranationals and agencies may still dominate volumes in SRI, but the Turkish development bank proved that emerging markets were ready to not just welcome the Green and sustainability concepts, but fully embrace them.

TSKB uncovered huge interest for its US$300m 4.875% 2021 Green and sustainability bond that will go towards refinancing and funding new projects, including climate change mitigation, climate change adaptation, and sustainable infrastructure. Proceeds will go towards building schools and hospitals in Ankara and Istanbul, for example.

Sustainalytics, an independent provider of environmental, social and governance research, accredited the bond as robust, credible and transparent, and ranked the bank as an outperformer on environmental, social and governance management.

TSKB already boasts Green credentials as the first Turkish bank to go carbon-neutral, according to Sustainalytics.

Notably, the index-eligible bond found support among not only private banks, university foundations and multilaterals, including the IFC, which gave an anchor order, but also traditional emerging markets investors.

That led to demand reaching US$3.9bn, the biggest order book for any Turkish bank bond deal over the past three years.

The leads were able to tighten pricing substantially during execution, by 62.5bp from initial price thoughts of 450bp area over mid-swaps.

But even as leads revised pricing, first to plus 425bp area (plus or minus 12.5bp), then to plus 400bp–412.5bp, the book continued to grow, though about US$300m of orders dropped from the peak level of US$4.2bn at the final issue spread of plus 387.5bp.

At that level, the bond came well through fair value, which was put at between 400bp and 410bp over mid-swaps based on TSKB’s outstanding April 2020s and the 4s/5s curves of other Turkish banks.

Significantly, even though investors suggested during the roadshow that TSKB had to price wide of Isbank, which holds a 50.1% stake, the bond priced through.

The “Green” label provided 20bp of cost savings, according to bankers.

The timing of the deal, in mid-May, was also good. A buoyant market provided a supportive backdrop, and with the investment-grade rated bond offering a yield of 5.048% investors needed no second invitation.

TSKB was rated at the time Baa3 by Moody’s and BBB– by Fitch. BNP Paribas, Citigroup, Commerzbank, HSBC, ING, Standard Chartered and UniCredit were the lead managers on the Reg S only deal.

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