The benefits of the green bond format for issuers was on full show in the euro SSA market last week, with both Swedish Export Credit Corporation and Bpifrance able to land successful transactions despite volatile conditions that show very little sign of settling down.
Last week, the European Union landed a well oversubscribed deal at the long-end of the euro market, despite that being more difficult for deal execution than other parts of the curve in recent times.
"You can always discuss what the greenium is in terms of basis points but sometimes it's not something that you can quantify," a banker said. "Sometimes, the greenium is just the fact that you can access markets in a very volatile environment. Here, you can look at the fact that two issuers were able to come to the market despite the volatile environment and get very solid books. It's a great result, especially as we've seen that in this more volatile environment it can sometimes be difficult to have investors' attention for the less liquid names, but the green elements really helped."
In the case of SEK, which was bringing its first trade in the single currency since 2013, it was able to launch a €700m five-year debut green issue in line with 5bp area guidance over mid-swaps via Citigroup, Credit Agricole, Deutsche Bank and SEB.
Weaker-than-expected flash PMI data from France, Germany and the eurozone led to a rally in European government bonds last Thursday, as odds of a recession shortened and those of aggressive rate hikes by the ECB fell.
"It's encouraging that we were able to do the trade on a day when Germany's five-year dropped by 20bp intra-day," the banker said. "In the past, I would have never opened books on this type of move but somehow investors are getting used to the volatility. Maybe we lost some interest but the reality is that we got a solid trade here."
SEK not only had to contend with volatility but also the fact that it is not Triple A, not explicitly government-guaranteed and not eligible for the ECB's purchase programme. It is 100% government-owned, however.
"Clearly, we are moving out of a QE world, they're not within that universe, but the quality of the book seems very impressive with around 40, 50 investors involved," another banker said.
For pricing, leads looked at other Nordic agencies such as Kommuninvest and KommuneKredit, with fair value for a new Kommuninvest five-year euro issue put at around less 5bp.
Books closed at more than €800m excluding lead orders for the Aa1/AA+ rated deal.
Making up for lost time
In the case of Bpifrance last Wednesday, the agency, similar to its French peers, faced a different challenge.
"Between the volatility we had in late February and the election weeks, it was not easy for French issuers to navigate those events and find the right window," the first banker said. "That's why you're seeing a flurry now. They need to come before mid-July as things will be complicated after that because of the holiday."
Bpifrance was the first agency to test investor demand after French legislative elections that saw president Emmanuel Macron lose control of the national assembly.
"OATs have suffered a bit and swap spread moves have put a bit of pressure on French agencies' spreads," a DCM banker said. "But the results weren't catastrophic and, while OATs underperformed by a couple of basis points or so, the real driver in the market remains the ECB."
The French agency landed a €1.25bn long five-year green issue at 33bp over OATs, the tight end of guidance, on books above €2.1bn via BNP Paribas, Credit Agricole, Natixis, NatWest Markets and Societe Generale.
The deal was initially targeted at €1bn but was upsized on the order book's quality.
“The book size is always smaller now than what we had at the beginning of this year," the first banker said. "We have in these books layers and motivated clients. We had enough demand to upsize the trade.”
Other French issuers are now lining up, including a return from long-time absentee Sagess. The manager for France's strategic oil reserves was last in the public benchmark market in 2016 and has mandated BNP Paribas, Credit Agricole, CIC, HSBC and Natixis for a dual tranche seven-year and 12-year, or a single tranche within that range, expected to be rated AA (S&P).
"They're LCR Level 1, 0% risk-weighted, which only Unedic and Cades have in France, so that helps," the DCM banker said. "But they are coming back to market in a different context from when they last issued. The green market was in its infancy then but clearly that's changed. They stock petrol; it's not theirs, they don't extract it but I think it will be an interesting discussion with some investors. Some might say that they can't buy and others might be fine."
The more seasoned Region Ile de France is also prepping a deal. The issuer has mandated BNP Paribas, Credit Agricole, HSBC and Natixis for a euro sustainable 10-year benchmark.