Nordic Junk Bonds Get Green Treatment as Buyer Demand Soars

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Nordic borrowers at the risky end of the credit spectrum are rushing to sell green bonds to meet a spike in demand from sustainable debt investors.

Once the preserve of top-rated corporates and government-related agencies, companies with higher yielding debt are increasingly getting in on the act.

“Green bond investors are getting more and more comfortable with going down the ratings scale and you’ll inevitably see them going into the high-yield sector too,” Jacob Michaelsen, Nordea Bank’s head of sustainable finance advisory, said in interview.

The spate of green issuance in recent weeks has been allied to rebounding volumes in the Nordic junk bond market generally. On Wednesday, for example, European Energy A/S raised 75 million euros ($89 million) in a green hybrid debt sale.

European Energy’s hybrid deal shows that despite the recent severe equity correction in the market, unrated renewable energy companies in the Nordic region can raise deeply subordinated debt at very competitive rates.

--Salvatore Santoro, global head of renewables, infrastructure and ESG at DNB Markets

Other recent borrowers to have successfully priced deals include Arwidsro Fastighets AB, Altera Shuttle Tankers LLC, Bonava AB and K2A Knaust & Andersson Fastigheter AB.

Click here for Bloomberg’s Nordic Currency New Issue Monitor

For investors such as Juhamatti Pukka, who manages a green corporate bond fund for Evli in Helsinki, the development is providing much needed diversification.

“You have a wide range of Nordic companies issuing green bonds, giving much broader diversification than in the European green bond market,” said Pukka, who bought into the Arwidsro Fastighets deal and plans to dial up the risk in his fund by focusing on names with double-B credit quality.

Nordic Junk Bonds Get Green Treatment as Buyer Demand Soars

In the Swedish credit market, which has become a major contributor to the region’s junk bond supply, bond investors last month poured money into corporate bond funds at the fastest rate so far this year.

“Today, a majority of Nordic investors are looking to add allocations to green bonds and that is a big driver for issuance,” Pukka said.

‘Sustainable Society’

For two of the Nordic region’s biggest high-yield investors, the transition to greener debt capital markets isn’t happening quick enough.

This month saw Carnegie Fonder and Spiltan Fonder launch a sustainability questionnaire for prospective issuers to answer before they can secure an investor meeting.

Green bonds have “contributed to increased transparency and sustainability awareness of issuers and investors. However, we believe more can be done to ensure a faster transition to a fully sustainable society,” the firms said in a joint-presentation seen by Bloomberg News.

Spiltan portfolio manager Lars Lonnquist says it’s “not easy enough” to find eligible green assets in the high-yield market, but admits the situation is “steadily improving.”

“Our assessment is that companies that don’t work with these questions, will in the future have to pay a larger price for funding than others,” said Lonnquist.

Looking ahead, Evli’s Pukka says the second half of 2020 will be “very busy,” with sectors such as real estate continuing to drive junk bond sales with a green label.

“The green bond market shouldn’t be just for investment-grade companies,” Pukka said. “The whole idea of green bonds -- making businesses more sustainable -- also requires participation from high-yield companies.”

©2020 Bloomberg L.P.

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