Investors piled into the Netherlands' inaugural, triple-A rated sovereign green bond on Tuesday, placing 21.2 billion euros ($23.7 billion) of orders for the environmentally friendly paper. The Dutch debt agency said it had given preference to investors that could prove their ecological credentials. Thirty-two investors had registered as green before the 20-year bond's auction, in which the Netherlands raised almost 6 billion euros.
It said that 82.5% of the bids from what it called "green real money accounts" were allocated. Such investors accounted for 28.5% of the allocated amount once the auction was over, the debt agency said in a statement on its website. The Netherlands follows European Union peers Poland, France, Belgium and Ireland in selling green bonds, but Tuesday's auction was the first by a triple-A rated sovereign borrower.
The initial price guidance was put in a range of 18 to 21 basis points (bps) over a benchmark German bond. The spread was finally set at 18 bps over and the bond yields 0.557%. Investors and bankers said it was the first time they had seen the issuer, in this case the Dutch debt agency DTSA, explicitly prioritising investors with green credentials and offering them a more favourable allocation.
"That's an interesting step," said Ross Hutchison, a bond fund manager at Aberdeen Standard Investments in Edinburgh. Investors who could prove their green credentials were eligible for allocations 10 percentage points higher, the Dutch agency said. That meant that green accounts were allocated 82.5% of their bid while ordinary real money investors received 72.5%. The bond was offered at an auction in which there was no underwriting role for primary dealers and client bids were placed directly with the Dutch debt agency. Other euro zone sovereign borrowers have issued green bonds via syndication.
With increasing regulatory scrutiny over the origin of funds, issuers are taking steps to know their end clients. "A lot of people are now much more concerned about the sustainability aspect," said Roman Schmidt, divisional board member capital markets at Commerzbank, adding that regulators were introducing stricter know-your-client rules. The increased scrutiny works both ways, with portfolio managers also increasing their dialogue with borrowers.
"As a portfolio manager, I meet all the issuers I have in my portfolio, which is not the case in traditional credit funds," Alban de Fay, a credit portfolio manager at Amundi Asset Management, told a conference in Stockholm last week.
Green bonds comprise a small fraction of the overall bond market, but interest has soared as banks, sovereigns and companies look to tap into increasing investor appetite.
Hong Kong on Tuesday sought to raise up to $1 billion in five-year green bonds as the former British colony acts to establish itself as a centre for green finance. The Dutch debt agency said it would reopen its 20-year green bond in the coming years to raise a total amount of around 10 billion euros.
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