ecoinvestor.com.au May 2015

Fixed Interest

ANZ Bank's First Green Bond

ANZ Bank has raised $600 million in its first green bond, which the bank said is the largest climate related bond so far by an Australian issuer. It was primarily taken up by Australian institutional investors as well as funds in Asia.

Assets in the bond comprise loans to utility scale wind power and solar projects and Green Star rated commercial property buildings in Australia, New Zealand and parts of Asia. Projects in the geothermal power and fuel efficient transportation sectors may also be considered in due course.

The five year fixed rate bond was priced at $99.384. There was an 80 basis points spread over the swap rate and the coupon is 3.25 per cent.

The bond has been certified by the Climate Bonds Initiative (CBI), and Ernst & Young has independently verified the bond against standards issued by the CBI and will review compliance on an annual basis until the bond's maturity.

CBI said the bond was 125 per cent oversubscribed, and that 46 investors participated with Australian investors accounting for 92 per cent of demand and the balance from Asia. Asset managers took 56 per cent, insurance companies 21 per cent and middle market 7 per cent. The other 16 per cent was banks, central banks, semi government, councils and private banks.

ANZ needs the green kudos as it is known to fund many coal and other high carbon projects.

ANZ's Global Head of Debt Syndicate, Paul White said "Strong demand from a diverse spectrum of investors for this transaction highlights the growing number of sustainable and ethical mandates within the institutional investment community. We expect the green bond market will continue to grow, as issuers look to tap the significant liquidity available."

The Clean Energy Finance Corporation (CEFC) provided a cornerstone commitment of up to $75 million but the bond was fully subscribed by private sector investors.

Katharine Tapley, Director Sustainable Finance Solutions in ANZ's Global Loans business, said "The fact that this transaction was possible without direct investment from the Clean Energy Finance Corporation (CEFC) is a positive development for the green bond market in Australia. However, we acknowledge the contribution that the CEFC has made to the development of the market in recent years."

Green bonds were created to fund projects that have positive environmental or climate benefits. Since the CBI was launched, annual global issuance of green bonds has risen from US$414 million in 2008 to US$36.6 billion in 2014.

CEFC chief executive Oliver Yates said that while CEFC's participation was not eventually required for the issue, the Corporation is ready to provide such cornerstone commitments for future green bond issuances, as part of its role to help expand and deepen the private sector clean energy investor market in Australia.

"Green bonds provide investors with a unique opportunity to invest in renewable energy and energy efficiency through a low-risk, high quality (rated AA-) fixed-income product. At the same time, green bonds support long term investment in important low carbon infrastructure projects which can benefit the broader economy."

Mr Yates said that green bonds are an important means of expanding and diversifying the investor base and flows of funds into clean energy. "Investors will always look for a strong financial return, and are increasingly seeking additional benefits such as an environmental or social return."

"Australian institutional investors are looking for ways to invest in clean energy but need more mechanisms for doing so, such as that provided by the ANZ green bond. To date, there have been limited opportunities in the Australian green bond market, showing the potential for growth in this kind of investment for the future.

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