LSE’s ‘green’ bond segments launch sees City of Gothenburg’s issue first to list

The London Stock Exchange’s (‘LSE’) launch of a range of new segments on its fixed-income markets “dedicated” to the issuance of green bonds this July saw the City of Gothenburg become the first issuer to use a new segment on the exchange via its recent SKr1.05 billion (c.$125m/£80m) green bond issue. Swedish officials from the city marked the listing by opening the London market.
Green bonds are classified as any type of bond instrument where the proceeds of the capital raised will be exclusively applied to finance or re-finance - in part or in full - new and/or existing ‘green’ projects.

The City of Gothenburg’s bonds, which have been admitted to the LSE on a trade reporting only segment (and for ‘off-book’ trade reporting), are available in minimum denominations of SKr10,000 (c.US$1,200/£765) issued at par with a fixed coupon of 1.455%.
The LSE’s new segments are touted as providing issuers with a “full suite of solutions” to support green bond issuance, offering the choice of a range of listed markets and trading models, spanning both Regulated Market and Multi-lateral Trading Facility (MTF), for retail and wholesale investors.

Gillian Walmsley, LSE’s Head of Fixed Income, said the exchange saw “huge growth potential for the sector” and that they were “leading the development of London as a key international hub for Green Finance.” The trading models on this new LSE segment include: (1) Continuous on-screen market maker quoting; (2) End-of-day pricing; or, (3) OTC-style trade reporting only.

The City of Gothenburg became the first city to issue a Nordic ‘green’ bond in September 2013 with a six-year SKr500m issuance facilitated by SEB. Part of a “potential” SKr2bn bond programme by the city to help finance environmental projects (e.g. for public transport, water and waste management), bond subscribers included Storebrand/SPP, Andra AP-fonden, Nordea Bostadsobligationsfond and SEB Företagsobligationsfond Flexibel amongst others.

The appetite for green bonds shown by investors continues to grow. They are seen as offering the same yield as other investments with similar conditions, but at the same time they “contribute to a better environment and higher awareness of climate-related challenges and solutions” according to Christopher Flensborg, SEB’s head of sustainable investments.

The market for green bonds has been steadily growing globally since 2008 when they were first issued by The World Bank, with organisations including the European Bank for Reconstruction and Development (EBRD) and the Export-Import Bank of Korea issuing such bonds.

According to recent figures cited in SEB’s ‘The Green Bond’ report (March 2015) the market is set to double to at least $70bn this year. It follows bond issuance more than tripling year-on-year in 2014 to c.$36bn. Issuance is being propelled by growth in clean energy, green building and transportation sectors as well as heightened interest from municipalities, regions and supranationals.

Major investors that continue to commit to the sector include Deutsche Bank, which this February signalled that it intended to invest €1bn in green bonds. This followed Barclays earmarking £1bn and Zurich Insurance doubling its mandate to BlackRock to invest US$2bn.

Other positive developments for the sector include Oslo Stock Exchange being the first to list green bonds, introduction of green bond indices and funds, as well as the revision of the Green Bond Principles, which launched in 2014 and seeks to clarify the issuance process.

Issuers admitting bonds to the LSE’s green segments must provide a “third-party certification” that such instruments are considered ‘green bonds’, with written confirmation that the entity appointed to conduct the green bond certification meets certain criteria and is a legal entity with a registered office in the European Economic Area or Switzerland.

Link for SEB ‘The Green Bond’ report here.