The Export-Import Bank of India sold a $500 million five-year green bond late on Tuesday, buoyed by growing regional investor appetite for a scarce debt instrument targeting a good cause.
Rated Baa3/BBB-, the Reg S-only offering priced at US Treasuries plus 147.5 basis points, which is 17.5bp tighter than its initial price guidance area, according to a term sheet seen by FinanceAsia. The bond has a coupon of 2.75%.
Part of a $6 billion medium-term note programme, the proceeds raised by the bond will be used to fund new and existing eligible green projects in countries including, but not limited to, Bangladesh and Sri Lanka, Exim India’s prospectus said.
Eligible investments include funding for rail- or bus-related equipment, systems and infrastructure that encourage and facilitate the mass transportation of people and freight, a source familiar with the matter said.
Other projects include the financing of equipment, systems, and infrastructure that facilitate the generation and distribution of renewable energy from solar and wind sources, the source said.
It is the third green bond to surface in Asia and India's first. Taiwan-based Advance Semiconductor Engineering raised a $300 million three-year offering in July 2014. The Export-Import Bank of Korea was the first green bond issuer, selling a $500 million five-year note back in 2013.
Green bonds — an innovative financial instrument that fund projects or assets that offer climate benefits — experienced outstanding growth in 2014, with $36.6 billion raised globally. That's triple the 2013 figure, according to Climate Bonds Initiative, an organisation seeking to mobilise the world's $100 trillion bond market for climate-change solutions.
The market is expected to reach $100 billion in 2015 and to treble again in 2018, the organisation forecasts on its website. This is a fairly optimistic prediction given that only $4.6 billion has been raised so far this year.
BOC Aviation's bond received an orderbook of $1.6 billion from 140 accounts, 65% of which went to Asian accounts and the rest to European investors, according to a source familiar with the matter.
Fund managers subscribed to 58% of the notes, followed by banks 20%, sovereign wealth funds and insurers 18% and private banks 4%.
Next best thing
The nearest comparables for Exim India’s green bond includes its outstanding 2020 notes that traded at a G-spread of 140bp prior to the announcement of the deal, a second source familiar with the matter said.
Other comparables include Axis Bank of India’s existing paper maturing in May 2020, which traded at a G-spread of 148bp.
The fair value of Exim India’s bond is around the 140bp, suggesting a new issue concession of around 7.5bp.
One credit analyst commented prior to the pricing of the transaction that investors should not chase this deal if it priced at Treasuries plus 150bp or less. Compared with bonds issued by similarly rated Chinese financial institutions, the Exim India transaction looked a bit expensive, he said.
“The deal still looks a tad rich versus Chinese banks on a ratings or reward basis,” said the Hong Kong-based credit analyst, who declined to be named. “But then everything looks rich compared to China given investors’ fears of continuous Chinese offshore bond supply.”
“And in the ex-China universe where a premium is paid for scarcity value, [Exim India’s] five-year at T+150bp looks okay,” the analyst added.
Exim India is 100% owned by the Indian government and was established in 1981. Its main responsibility is to provide financial assistance to exporters and importers, and to coordinate with companies engaged in the financing of exports and imports.
Bank of America Merrill Lynch and JP Morgan were the joint bookrunners of the transaction.
