France changed the landscape and pushed the boundaries of what was possible in the Green bond market, marrying state budget plans with best-in-class environmentally responsible financing while establishing a blueprint for the asset class.
Agence France Tresor’s €7bn 1.75% June 2039 issue offered investors the best of both worlds: the same standards of liquidity and market functionality as a normal OAT, and a rigorous Green bond framework.
Although pipped to the post by Poland as the first sovereign to issue a Green bond with its €750m five-year in December 2016, France’s issue was the largest Green bond, and at the time the longest. And it marked a seismic shift not just for Green bonds but for sovereign issuance in general.
Use of proceeds was expanded beyond the traditional bounds of capital expenditure to incorporate different parts of the state’s general budget, contributing towards climate change mitigation efforts, biodiversity protection and pollution control.
The bonds also financed innovative types of intangible assets, such as research and development.
The highest standards were applied on the reporting side. France will provide three reports to investors: an annual allocation report verified by an auditor, annual outputs, and an ex-post impact report to be reviewed by an independent council.
Second opinion provider Vigeo Eiris said that it was satisfied to a reasonable level of assurance on the sustainability of the OAT, the highest grade possible.
The bond offering not only stood out because of its Green credentials but also because of the execution challenges at the time.
Despite a complicated domestic political backdrop in January, with Marine Le Pen of the Front National leading some polls in the race for the presidency, France paid a new issue premium of just 2bp for its largest-ever single-tranche deal.
The trade was ushered into life with order books of more than €23.5bn. An extensive marketing effort that included a two-week, two-continent roadshow helped the sovereign break through to a fresh pool of investors.
Demand was almost double that for France’s 2036 OAT printed the previous year.
Around 200 accounts participated in the deal. The allocation to Dutch and Nordic buyers, two hotbeds of ESG investment, dramatically increased compared with the 2036 OAT. For example, Dutch investors’ share of the order book rocketed to 19% in the 2039 Green bond issue versus only 0.5% of the 2036 notes.
The AFT aims to bring the bond’s size up to at least €20bn and provide a true benchmark for the market. It was already increased by more than €1.6bn through a May auction, and the bond will be a cornerstone of the AFT’s 2018 financing programme.
France is rated Aa2 by Moody’s, AA by S&P and Fitch and AAA by DBRS, all with a stable outlook. Barclays, BNP Paribas, Credit Agricole, Morgan Stanley, Natixis and Societe Generale were joint lead managers.