World Bank Group member IFC’s launch of the first New Zealand dollar green Kauri bond is special for a number of reasons, none more than its environmental profit orientation, said the lead lawyer involved in the issue.
IFC launched the NZ$125 million green Kauri bond, with a yield of 3.865%, in late July to finance private sector investments addressing climate change in emerging markets.
The Kauri bond, named after a native New Zealand tree, is a bond denominated in New Zealand dollars that is issued by a foreign issuer. Ross Pennington, a partner at Chapman Tripp in Auckland, said the issue itself was straightforward for his five-member team.
“The key element that made the green bond special is really the use of proceeds, and that was the main difference in the documentation, the setting out of the things that the money that IFC has attracted from this issue goes towards, such as renewable energy projects, green technologies and the like,” said Pennington.
“Also because the key with green bonds is the credibility from the investors’ perspective as to the use of funds, we describe in the term sheet briefly the sort of reporting and audit regimes that IFC has put in place in order to assure investors that their money is being put to these green uses.”
Pennington described the Kauri bond market as very much a facilitative format. “The international issuers are able to offer their own global, EMTN [euro medium-term note], or Australasian debt programmes, as they wish,” he said. “There’s no requirement for licensing or registration in New Zealand – it’s very straightforward. We normally do Kauri issuance on a T+10 basis, from initial term sheet right through to execution. The green bond was no different.”
IFC, the largest global development institution focused on the private sector in emerging markets, was one of the earliest issuers of green bonds – launching its first in 2008 – to help catalyze the market and unlock investment potential for private sector projects that support renewable energy and energy efficiency globally.
It issued the first RMB500 million offshore renminbi-denominated green bond in London in 2014, and the first green offshore rupee-denominated bond in 2015.
The 10-year fixed rate bond will be issued under IFC’s global medium-term note programme. Bank of New Zealand (BNZ) is acting as arranger and ANZ Bank and BNZ are acting as joint lead managers on the bond.
“The green bond market is a new market for us, and it’s one we’ve been talking about for some time, and obviously New Zealand, with its clean green image, is very receptive to this sort of innovation,” said Pennington.
“It’s interesting that IFC should have brought this because they have obviously been heavily involved in catalyzing the market from when it started about 10 years ago, which is coincidentally about the time the Kauri bond market got going as well, and as I understand it they’ve got about US$15 billion out there worldwide. So it’s really nice to see a positive contribution coming out of Washington on environmental matters.”
“While this is the first, I would by no means expect it to be the last and it’s certainly something that Chapman Tripp is very excited to be a part of. It’s great in the sense that it showcases the ability of debt capital markets to direct positive asset allocation.”
IFC director for treasury market operations, Monish Mahurkar, said the issuance “demonstrates the continued and expanding role of capital markets in mobilizing international savings to help close the climate finance gap”.
IFC will use the proceeds to support investments in renewable energy, energy efficiency, and other areas that reduce greenhouse emissions. The funding raised from IFC green bonds are allocated within IFC in a separate account and the inclusion criteria for eligible investments are independently verified by the Centre for International Climate and Environmental Research-Oslo (CICERO).