EU pulls in record $156 billion orders for debut green bond

The European Union drew record demand for its debut green bond, in the sector’s biggest-ever offering.

The bloc registered more than 135 billion euros ($156 billion) in orders Tuesday for a sale of 12 billion euros of securities maturing in 2037. Both the demand and size eclipse last month’s debut from the U.K. The transaction is just the first in a 250-billion-euro program of EU green-bond sales earmarked for the coming years.

“This will be the largest green bond out there and it will provide investors with one of the most -- or the most -- liquid green bonds,” said Julian Kreipl, a credit analyst at UniCredit SpA in Munich.

The jostle for orders was an “absolute riot,” according to Kerr Finlayson, the head of the frequent borrowers group syndicate at NatWest Markets Plc in London. The EU also holds the overall debt-market record, with 145 billion euros of orders for a social bond debut last year.

It’s big business for joint lead managers Bank of America Securities, Credit Agricole SA, Deutsche Bank AG, Nomura Holdings Inc. and TD Securities, as banks compete for fees from record green sales this year of over $400 billion. The world’s top three arrangers -- JPMorgan Chase & Co., BNP Paribas SA and Citigroup Inc. -- weren’t on the deal.

Green Premium

Demand for this kind of debt is typically so high it commands a green premium, or “greenium,” versus conventional bonds. The pricing was set at eight basis points below midswaps, cut from initial guidance of five basis points below swaps.

That was around “fair value” for Floortje Merten, a strategist at ABN Amro Bank NV in Amsterdam, who sees the bond going on to outperform its conventional peers in the market.

“The bond can perform -- we think the greenium can grow to potentially around five basis points,” said Merten.

The proceeds will be chanelled to member states for spending in areas such as energy efficiency, clean energy and climate change adaptation. 

However, the rush to start the funding means the debut comes before lawmakers and member states have actually approved the EU Commission’s green bond framework, potentially undermining its goal to make that a “gold standard” for other borrowers around the world.

The Commission said the debt will adhere to its framework where feasible, and also to widely-used principles from the International Capital Market Association. It has been reviewed by a second party opinion provider, Vigeo Eiris, part of Moody’s ESG Solutions.

“The EU had to find a compromise between the urge of issuing its first green bond and waiting for the final version of its taxonomy, which is currently suffering from heavy lobbying,” said Maia Godemer, a sustainable finance associate at BloombergNEF. “If the EU wants to show the robustness of its green action plan, the next issuance should be fully financing projects aligned with the taxonomy.”