Sterling Bond: UK DMO’s £10bn July 2033 green Gilt

IFR Awards 2021
3 min read
Helene Durand, Philip Wright

Big and bold

Sometimes there are deals that make people really sit up and take notice. The UK Debt Management Office produced one of these in no uncertain terms with its inaugural green Gilt – a transaction that broke records for size, demand and pricing in the asset class and set new standards to which to aspire.

September’s issue emerged just a few weeks ahead of November's COP26 climate meeting in Glasgow. Despite its ambitions to be a green leader, the UK market had thus far lagged behind in terms of ESG supply, although the DMO addressed this in one fell swoop, catapulting itself up the ranks in the space of just one issue and creating a benchmark for others to reference.

Leads Barclays, BNP Paribas, Citigroup, Deutsche Bank, HSBC and JP Morgan opened books at guidance of 7.5bp–8.5bp over the 4.25% June 2032 Gilt, pricing at the tight end in a larger-than-expected £10bn size on the back of more than £100bn of demand.

"This was not only a record book for a UK DMO syndication by some considerable margin but was also the largest ever green order book and shows the huge appetite for green sterling assets," said Asif Sherani, head of DCM syndicate EMEA at HSBC. "At £10bn, it's the largest ever sovereign green bond, and while the UK could have printed considerably more, they were limited in terms of size. The ESG angle added demand, both from an international and domestic perspective."

The order book beat Italy's green debut six months earlier, when demand was more than €80bn. The deal eclipsed the DMO's own record as well – the £82.6bn book for the £12bn October 2030s in May 2020.

The trade also set a new mark for the greenium. At 7.5bp over the June 2032 Gilt, Sherani said the UK had achieved a 2.5bp greenium based on an interpolation of its on-the-run 2031s and 2035s.

"One of the previous stumbling blocks is that we wanted to be sure as much as we could be that we could achieve value for money for the UK taxpayer," said Robert Stheeman, chief executive of the UK DMO. "We feel that we have been able to achieve that in a very clear and unambiguous manner with this deal. At around 2.5bp, this is the largest ever greenium by any sovereign for an inaugural offering."

Stheeman said that, while the size of the book gave an indication of the significant demand and momentum behind the transaction, the true mark of the deal's success was the diversity in orders. "There were genuine new investors who had previously not appeared in a Gilt order book. We genuinely didn't set out to do a £10bn trade, but under the circumstances felt this was appropriate," he said.

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