GREEN BOND PRICING H1 IN THE PRIMARY MARKET: (Q1-Q2) 2019 January - June 2019 Report highlights • Includes 61 green bonds from 52 issuers with a combined face value of USD56.6bn issued in H1 (Q1-Q2) 2019 • EUR green bonds achieved larger book cover, and greater spread compression than vanilla equivalents, on average • USD green bonds were similar to vanilla equivalents, on average • Two thirds of green bonds in our sample priced without new issue premium • 53% of green bonds were sold to green investors • 28 days after pricing, green bonds tend to have tightened more than their benchmarks, on average • Spotlight on EUR Utility bonds With funding support by Obvion Hyptheken and Lyxor Asset Management Green Bond Pricing in the Primary Market: January - June 2019 1 Introduction Report highlights This is the 8th report in our pricing series, • On average, EUR green bonds achieved • Seven days after pricing, vanilla bonds in which we observe how green bonds larger oversubscription and spread had tightened more than green bonds, on perform in the primary markets. This compression than vanilla equivalents (for average. After 28 days, green bonds had, report includes bonds issued in the first six the same sector and period). on average, tightened more than vanilla months of 2019 (H1 2019). See more on page 3 bonds. See more on pages 12 During this period, USD117bn of green bonds • On average, USD green bonds achieved were issued that complied with the Climate lower oversubscription and spread • In Q3 more green benchmark Utilities Bonds Taxonomy.1 Our analysis for H1 2019 compression than vanilla equivalents. were issued than vanilla bonds. includes almost half of that, USD56.6bn split See more on page 3 We spotlight the Utility sector to between 61 green bonds from 52 issuers. The determine what proportion of debt overwhelming majority of this, USD45.6bn • 53% of green bonds were allocated issued in 2019 is labelled green. (EUR40.5bn), is denominated in EUR and to investors describing themselves as See more on pages 15 split between 46 bonds. The remaining green. USD11.0bn comprises 15 USD-denominated See more on page 6 bonds. In 2018 – the whole year - we looked • Six green bonds priced with a greenium. at a total of 63 green bonds amounting to Overall, two thirds of green bonds in USD58.4bn. H1 2019 data highlights the our sample did not have a new issue substantial increase in benchmark-sized premium. green bond issuance in EUR and USD. See more on page 7 Our methodology is designed to capture the most liquid portion of the market and therefore limited to USD- and EUR- denominated bonds with a minimum size of USD500m. See full details of our methodology on page 24. 1. Market developments Our pricing publications typically capture Investors were keen to buy bonds, green by Verizon 2029 (USD), and Vodafone around 30% of the green bonds issued or otherwise. The average book building 2026. Korean LG Chemical issued the first during the observation period. In H1 2019, numbers for both green and vanilla bonds green bonds from any chemical company, however, our universe includes half the in H1 2019 are the largest we have seen in a multi-currency (EUR and USD) three- green bond issuance volume. This suggests in any observation period since we began tranche deal. ESB 2030 was the first green that green bonds are getting larger, and our pricing monitor in 2016. For example, corporate bond from Ireland, following the indeed, 14 bonds in our sample were at least in H1 2019 EUR green bonds were 3.9x Irish Government’s Q4 2018 example. Use USD1bn, four of them Sovereigns. oversubscribed and vanilla bonds were of proceeds among the new issuers is mixed, 3.3x oversubscribed compared to 2.6x and though renewable energy continues to In Europe, the increase in the number of 2.1x respectively in H2 2018. Demand also dominate in both EUR and USD. large green benchmark bonds is concomitant increased for issuers in the USD market. In with an increase in overall issuance in EUR Remarks: H1 2019, order books were 4.1x covered for bonds and an increase in appetite for yield, • Based on Moody’s and S&P credit ratings, green bonds and 4.5x for vanilla, while in H2 while in the US, overall issuance contracted. we have observed a broader range of 2018 they were 1.9x and 2.0x respectively. At the end of June, EUR-denominated seniority rankings for Financial Corporate investment grade issuance was 24.3% Twenty-four issuers revisited the market with green bonds in 2019. We have denoted ahead of the same point in 2018.2 In the US, a single green bond, and six repeat issuers the seniority rankings using the following investment grade credit issuance was just brought two green bonds each: in EUR, abbreviations: Senior Preferred = SP, Senior 87% of the same point in 2018.3 SNCF issued a 2047 in January, and a 2029 Non-Preferred = SNP, Senior Unsecured = in June. Poland (2029 and 2049), TenneT SU. As per our standard methodology, we Debt markets had been challenging towards (2030 and 2039), Engie (2027 and 2029), match the payment rank of the green bond the end of 2018. At least two green bond and in USD MidAmerican Energy (2029 when selecting appropriate vanilla bonds issuers roadshowed in late 2018 but held off and 2049) each brought two tranche deals. with which to compare the performance. until 2019 to issue: OP Bank 2024 and CPPIB LBBW issued a covered green bond in USD • There is no index data for LBBW 2022 Capital 2029. In Europe, Brexit uncertainty and (2022) and a senior non-preferred in EUR (USD, covered) because we don’t have Italian budget concerns made investors wary. (2024). EIB issued its 45th green bond, the access to the correct index. In the USA, the increasingly heated trade talks 11th denominated in EUR. EBRD issued its • We could not establish book cover data for with China were having a similar effect. Credit 33rd green bond. LG Chemical 2029, and FMO 2024. markets rallied in the first four months of 2019, • Both Societe du Grande Paris & SNCF widening again in early May when the trade There are 23 debut green bond issuers Reseau have been classified as SSA. tension between US and China came back covered in this paper, adding still much They are compared to SSA indices, and into focus, but edged back towards the end of needed sector diversification.Telefonica comparable bonds have been chosen from June. Many issuers were and remain ready to 2024 was the anticipated first green bond this sector. capture lower borrowing costs. from the telecom sector, closely followed Green Bond Pricing in the Primary Market: January - June 2019 2 USD first time green bond issuers H1 2019: Energy is the preferred use of proceeds Energy Buildings Transport Water Waste Land Use Industry ICT Unallocated A&R 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Hong Kong 2024 Chile Government 2050 FMO 2024 Verizon 2029 DTE 2049 LG Chemical 2024 & 2029 Rongshi 2024 Korea Electric 2024 EUR first time green bond issuers H1 2019: Energy is the preferred use of proceeds Energy Buildings Transport Water Waste Land Use Industry ICT Unallocated A&R 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Netherlands 2040 ICO 2024 Citigroup 2022 (SU) OP Bank 2024 (SP) Leaseplan 2024 (SP) Danske 2024 (SP) Unione di Banche 2024 (SP) La Banque Postale 2029 (SNP) RBC 2024 (SU) ERG 2025 LG Chemical 2023 Vodafone 2026 Vesteda 2027 ESB 2030 Vattenfall 2026 Green Bond Pricing in the Primary Market: January - June 2019 3 2. Spread compression and book size: Spread compression and order book size of both green and vanilla bonds are the largest we have seen since 2016. • EUR: Oversubscription average is Green bonds are oversubscribed and investors wanted to buy all types of bonds. 3.9x for green bonds, and 3.3x for undergo spread tightening during book On average, EUR green bonds were more vanilla bonds. Spread compression building, just like vanilla bonds. We compare oversubscribed and tightened slightly more averaged -17 for green bonds and green bonds to vanilla equivalents to see than vanilla equivalents, while in USD, vanilla -16 for vanilla equivalents. whether there are any differences in the bonds performed slightly better. magnitude of change. • USD: Oversubscription average EUR green bond pricing is 4.1x for green bonds, and 4.5x In H1 2019, average spread compression Individually, 26 out of 46 EUR green bonds for vanilla equivalents. Spread and oversubscriptions were the largest attracted larger book cover than their vanilla compression averaged -19 for since we started monitoring them in baskets and 27 achieved greater spread green bonds and -20 for vanilla January 2016. This applies both green compression during pricing. equivalents. and vanilla bonds. This indicates that Book cover. Prior to H1 2019, the largest 26 out of 46 EUR green bonds attracted higher book cover than vanilla equivalents Sovereign SSA Covered AAA AA A BBB • Green Bond • Vanilla bond 8 EUR Green bond average 6 book cover: 3.9x EUR Vanilla bond average book cover: 3.4 x 4 2 Times oversubscribed Times 0 EIB 2042 Chile 2031EBRD 2024SNCF 2029NRW 2029 ICO 2024 KfW 2027 SNCF 2036 Poland 2049Poland 2029 SDGP RATPFP2050 2029 Netherlands 2040 CCPIB Capital 2029 Societe du Grande Paris 2034 8 EUR Green bond average 6 book cover: 3.9x EUR Vanilla bond average book cover: 3.4 x 4 2 Times oversubscribed Times 0 ESB 2030 Engie 2039 ICBAS 2022 TenneT 2039 Engie 2027 RBC 2024 (SU) TenneT 2030 Prologis 2029 OP Bank 2024Nordea (SP) 2026 (SP) LG Chemical 2023 LBBW 2024 (SNP) SMFG 2024 (SU) Westpac 2024 (SU) Citigroup 2022 (SU) ABN Amro