Markets Monthly #5 - 10/06/2020: Cumulative GB issuance at USD845bn: China cleans coal from Green Catalogue

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Our Markets Monthly ‘Coffee Break’ Webinar on Thursday 11th 13:00 London Time. 15 mins of May market analysis & conversation with Lea Muething.

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May at a glance

May 2020 saw green bonds worth USD14.6bn come to the market, bringing total cumulative issuance to USD845bn. Despite the monthly figure being a 53% decline year-on-year (May 2019 was last year’s peak in issuance) the figure reflects that the volume is stabilising after the sharp dip in March.

The effects of the COVID-19 pandemic remain omnipresent. The interest rate environment is still at an all-time low after cuts in the major markets including the US and the UK, as the Fed and the Bank of England have slashed rates to stimulate lending. These circumstances have also made it possible for the UK to print its first negative-yielding government bond. Nevertheless, the credit market has been supported by different quantitative easing measures, such as the ECB Pandemic Emergency Purchase Programme which started in mid-March this year.

The social and sustainability bond rally continues, with the French agency Unédic raising EUR4bn (USD4.4bn) – one of the largest social bonds ever issued. In the meantime, institutional investors such as BlackRock are targeting the pandemic with impacts funds focusing on COVID-19 and the SDGs.

Measures to support a green recovery from the pandemic are starting to materialise. Companies in Canada will have to disclose climate impacts in order to qualify for Covid-19 relief and Norway has proposed a package of NOK3.6bn (USD370m) to support green technology projects. Germany announced the largest set of green recovery measures so far (EUR130bn/USD145bn) this week, including support for electric vehicles and R&D on green hydrogen, among others. The EU’s recovery package will also have a green component. However, work remains to be done, as the Guardian reports that most of the post-COVID stimulus – as much as USD500bn equivalent – remains tagged to brown industries.

At the same time, companies aren’t shying away from further commitments: Southern Company (USA) has just announced its goal to a transition to net zero carbon emissions by 2050. On the financial side, Citigroup (USA) said it is launching a new business unit called Sustainability & Corporate Transitions.

The transition agenda is advancing on government level as well: China has removed ‘clean coal’ from its list of eligible projects for green bonds. Japanese experts propose a national ‘transition taxonomy’ for finance and the government is establishing an online platform along with a high-level international political meeting to discuss green transitions and recovery from the pandemic. Support from third-parties is headed in that direction as well as Sustainalytics recently launched its transition bonds Second Party Opinion service.

Third-party reviews remain key in the green bond market. After a dip in March, Climate Bonds Certifications have seen an increase in issuance volume passing the cumulative $120bn milestone. Certified Climate Bonds amounted to USD2.6bn in May 2020 compared to USD1.5bn in April and USD1bn in March 2020. A high-profile Certification came from Eurogrid, a non-financial corporate from Germany, which completed its debut green issuance with a deal worth EUR750m (USD834m – see New issuer spotlight).

In May, Non-financials as well as Financial corporates issued relatively more than other issuer types compared to last year; Non-financial corporates also in absolute terms. Of the latter, Asja Ambiente Italia SPA (Italy) issued its third deal raising EUR1m (USD1m) in order to finance the development of new high-quality biomethane production plants. With its debut issuance, Credit Suisse (Switzerland) included Equity as an asset class that is eligible for green funding. On a similar note, K2A (Sweden) has created a green Equity framework. Also, on the debt side, different bond structures keep appearing in the green space: the hydrogen engines and fuelling solutions provider Plug Power Inc. from the USA issued the country’s first green convertible.

Government-backed entities dominated issuance volume in May. With newcomers Swisscom (Netherlands – watch out for a special blog post coming this week) and Sacramento Municipal Utility District (USA) with EUR500m/USD556m and USD400m, respectively (see New issuer spotlight), total volume from this issuer type added up to USD5.6bn. Dutch public sector specialist bank NWB Bank (Netherlands) is using its USD500m deal proceeds on for example funding energy recovery and the extraction of phosphorus from wastewater.

As opposed to this time last year, there was little Sovereign issuance in May 2020. Repeat issuer Republic of Lithuania raised a total of EUR28m (USD31m) for green projects.

The US is leading country rankings this month with USD5.2bn, which is more than a third of the total volume. This came mainly from multiple US Muni bonds making up 52% (USD2.7bn) of that figure and marking the second highest monthly volume of that instrument type after December 2017.

The US was followed by France (USD3.1bn), Germany (USD1.4bn) and multiple other countries belonging to developed markets, making this segment comprise 91.8% of all May issuance. Only the Lithuanian Sovereign can be credited to emerging markets. Nevertheless, Luxembourg – appearing less frequently in the country list- saw CPI Property Group return to the market financing Green Buildings, Renewable Energy and Land Use.

Check out the full list of new and repeat issuers.

Click on the issuer name to access the new issue deal sheet in our online Bond Library.

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