Germany Seizes on Demand for Green Debt With $7.7 Billion Debut
Germany to Sell Debut Green Debt as it Seeks to Dominate Market
(Bloomberg) -- Germany racked up near-record demand for a bond sale in its debut green debt offering, grabbing nearly a tenth of the growing global market.
It raised 6.5 billion euros ($7.7 billion) from the 10-year sale, with demand more than five times that at 33 billion euros. The strong investor interest meant it priced one basis point tighter to the existing conventional bond.
“There’s a big demand, and the fact that Germany’s done it today will probably spur also some other European member states to look into this market,” said Tanguy Claquin, head of sustainable finance at Credit Agricole SA, one of the bookrunners on the sale.
The offers nearly matched a record set at a sale of conventional bonds earlier this year. Another green maturity is due to be sold in the fourth quarter, taking issuance this year to around 11 billion euros, Joerg Kukies, Germany’s Deputy Finance Minister, said last week.
While the nation has lagged others in issuing debt to be used for environmental projects, its entry is significant for the size of issuance, and plans to twin the bonds with conventional securities in an effort to build a more liquid market. Spain, Italy and Austria could be among those to follow.
Germany aims to be the benchmark issuer for green debt in Europe, according to Kukies, taking up a mantel that it has long held with its normal bonds thanks to its AAA rating. The green debt has a coupon of 0%, with a yield equating to -0.46%, just below similar-maturity conventional bonds.
“Compared with a traditional bond from Germany, there is a very diversified demand for this bund coming from a number of green players, and a lot of quality orders,” said Claquin. “It doesn’t look like a usual bund book, it’s clearly greener.”
Floortje Merten, a strategist at ABN Amro Bank NV, said the green bonds could be switched for conventional bunds if the price drops below them, helping provide a floor for buyers. Barclays Plc, Commerzbank AG, Deutsche Bank AG, JPMorgan Chase & Co. and UniCredit SpA were also joint lead managers on the sale.
Sweden saw investor demand at more than double the amount offered when it raised $2.3 billion in its debut green bond sale this week, as a summer lull in issuance ended. Poland was the first to issue such securities in 2016 and France is currently the biggest issuer in the world.
The European Union looks set to follow for part of its 750-billion-euro recovery fund, which would be a game changer for the global market. EU leaders and German Chancellor Angela Merkel have said that they want the region’s recovery from the coronavirus crisis to be a green one.
“This structural change requires extensive investments,
which will also be financed via the capital market,” said Tammo Diemer, a member of the German finance agency’s executive, in a statement. By regularly issuing such bonds, the government is making a significant contribution to the sustainable finance market’s development, he said.
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