The Export-Import Bank of Korea (Kexim) has closed Asia’s first US dollar “green bond”, or climate friendly bond. It is also the first non-supranational to issue such a bond globally.
The Asian Development Bank has previously issued green bonds but those were denominated in other currencies such as Australian dollars, Brazilian real and Turkish lira. So far, green bonds have mostly been issued by supranationals such as The World Bank and International Finance Corp.
The $500 million five-year bond attracted $1.8 billion of demand from more than 100 investors. There are no fixed criteria for what qualifies as a green bond, but Kexim said it will use the proceeds to extend loans to projects that promote the transition to “low carbon and climate resilient growth”.
This may include projects that foster clean sources of energy, such as wind, hydroelectric and solar power; or that lower the dependence on fossil fuels. It also includes projects that reduce carbon emissions or filter waste, such as water treatment projects.
The projects will receive validation from the Centre for International Climate and Environmental Research in Oslo, and will also adhere to Korean environmental laws and regulations, and guidelines from the Organization for Economic Co-operation and Development.
“There are different shades of green, but Kexim did go to some lengths to reassure investors that it is ‘green’ enough,” said one source.
Dedicated funds for green bonds don’t really exist in Asia, but are more established in the Nordic counties and the US. This was reflected in the orderbook, with US investors allocated 47%, European investors 32% and Asian investors 21%.
There were merits of issuing a green bond aside from saving the environment. It helped Kexim to broaden the pool of investors and the policy bank saw a significant number of new investors participate in its latest deal, including the New York City-based Teachers Fund. About 70% of the deal was allocated to dedicated green funds. Tapping new investors also helped drive pricing tighter.
For investors, a name like Kexim offered the chance to diversify their holdings out of supranationals.
“We are excited to see an increasing number of organisations issuing socially responsible securities,” said Stephen Liberatore, managing director and portfolio manager of TIAA-CREF in a release. “A robust market of socially responsible investments helps us meet the needs of more and more investors looking to align investments with principles.”
“The Kexim green bond is a good fit for us because it supports global climate-related initiatives, adds portfolio diversification and has the potential for long-term performance,” he added.
The initial guidance for the bonds was Treasuries plus 100bp and the final guidance was Treasuries plus 95bp to 100bp, with the bonds printing at the tight end. The outstanding Kexim 2018s were trading at Treasuries plus 104bp, and the new bonds came about 9bp inside of that. The coupon was 1.75% and the notes were reoffered at 99.672 to yield 1.819%.
Most of the green bonds by supranationals have been private placements, although International Finance Corp issued a $1 billion publicly distributed bond a week ago.
Some 55% of the Kexim deal was allocated to asset managers, 31% to banks, 5% to insurance and pension funds, 4% to companies and 5% to other investors.
Bank of America Merrill Lynch and Sweden-based SEB Enskilda were joint bookrunners.
