NBAD green-bond issuance puts environment at forefront

A new form of environmental financing has reached the Gulf as National Bank of Abu Dhabi issues the region’s first green bond totalling US$587 million.

The five-year green bond will be listed on the London Stock Exchange, priced at a spread of 98 basis points over mid-swaps and pay a coupon of 3 per cent yearly.

Green bonds must follow environmental guidelines, known as the Green Bond Principles, set forth by the International Capital Market Association.

Three projects have been earmarked to benefit from the funds raised by NBAD, according to an environment, social and governance (ESG) assessment conducted by Montreal-based Vigeo Eiris.

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Fuel for thought: This green bond could be the start of a new era in financing

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Two of the projects are in the UAE – the 100-megawatt Shams concentrated solar power (CSP) plant in Abu Dhabi and the Etihad Rail network.

The third is a property development in the United States.

“It illustrates that socially responsible investors are an increasingly relevant liquidity source,” said Andy Cairns, NBAD’s global head of debt origination and distribution.

“I’m optimistic that this transaction will establish the blueprint for other Middle Eastern issuers to follow suit and issue green bonds and sukuks.”

Green bond issuance nearly doubled last year to $81 billion with higher levels expected this year. “Green bonds are this year’s phenomenon after doubling in size last year and expected to double again this year,” said Sean Kidney, chief executive of the Climate Bonds Initiative.

He said every green bond issued had effectively become a premium product.

“People really want these products in the secondary market and there aren’t enough around,” said Mr Kidney.

NBAD intended to issue a green bond last year, but postponed because of unattractive pricing.

Diako Makmalbaf, Ernst & Young Middle East clean energy manager, said that one potential roadblock for the region to enter into this market was a marketing issue.

“International investors may not be aware of the fast-increasing renewable energy and green market in the region,” he said. “The industry needs to do more to change global perceptions of this region.”

NBAD’s bond is about 72 per cent bigger than the average corporate or government green bond issued last year at $340m, according to Bloomberg New Energy Finance (BNEF).

Daniel Shurey, BNEF’s analyst for green finance, said that there was evidence that some supranational green bonds with high levels of transparency of green credentials traded at a premium to equivalent conventional bonds.

“However, there are simply not enough comparable securities to see a clear difference in pricing across the market,” he said.

Mr Kidney said that there always had to be a first mover in the market.

“The value [for green bonds] will not be more than slightly better than ordinary bonds, but in capital markets, slightly better can move an ocean.

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