International Finance Corporation (IFC), the private sector investment arm of the World Bank, has launched its first New Zealand green bond, to finance private sector investments addressing climate change in emerging markets.
IFC issued a minimum NZ$100 million (US$75 million) green Kauri bonds on Thursday. Kauri bonds are New Zealand dollar-denominated securities sold by a foreign entity.
The 10-year fixed rate bond is issued under IFC’s global medium-term note programme, and will be priced on Friday.
The proceeds will be used to support investments in renewable energy and other areas that reduce greenhouse emissions, IFC says in a statement on Thursday.
Flora Chao, senior funding officer of IFC, tells Asia Asset Management (AAM) that an upper limit has not been set for the offering at this point.
“We’re still in the book building process, so will only have more information when we look to price on July 28,” Ms. Chao says. The current indicative yield of the bonds is 3.86%, she says.
ANZ Bank and Bank of New Zealand are the joint lead managers of the deal.
“This issuance demonstrates the continued and expanding role of capital markets in mobilising international savings to help close the climate finance gap,” Monish Mahurkar, IFC’s director for treasury market operations, says in the statement.
Joseph Cherian, practice professor of finance & director of the Centre for Asset Management Research & Investments at the NUS Business School in Singapore, says he is “heartened” by the IFC’s move, which “impacts our industry and the environment in a positive way.”
“Truth be told, the IFC has always been an innovator in creating financing structures for emerging markets, particularly for infrastructure development with an ESG [environmental, social and governance] focus,” Professor Cherian tells AAM.
According to Ms. Chao, IFC has issued approximately $6 billion in green bonds as of July 2017, up from $4 billion two years ago. The figure includes the Kauri bonds.
“We’ve issued green bonds in 12 currencies [including the Kauri bonds] to date,” she says. “The New Zealand market has always been an important market for IFC. We saw an opportunity to issue in New Zealand as green investment and SRI [socially responsible investments] are becoming more of a focus in the country, and market conditions were conducive.”
IFC was one of the earliest issuers of green bonds, with its first such offering in 2008 for a group of Scandinavian investors.
In 2014, it sold the first offshore RMB-denominated green bonds, and a year later, issued the first offshore rupee-denominated green bonds.
Professor Cherian says the IFC offering, as well as Singapore bank DBS Group Holdings’ recent successful issuance of $500 million floating rate green bonds, “are perhaps a sign of things to come in this part of the world.”
“Both issuances are firsts within their own right: be it a green bond being launched in New Zealand, or the first financial institution in Singapore to issue a green bond,” he says.
According to Moody’s Investors Service, global green bond issuance increased 120% to $93.4 billion as of December 2016, from $42.3 billion a year earlier.
