Fresh Food & Green Bonds! - Green Bond for Solar Power at 4.05% for 5 years!
First it is
important to define what a “green bond” is. “A green bond is a bond
specifically earmarked to be used for climate and environmental projects. These
bonds are typically asset-linked and backed by the issuer's balance sheet, and
are also referred to as climate bonds.”[1]
They are : “…designated
bonds intended to encourage sustainability and to support climate-related or
other types of special environmental projects. More specifically, green bonds
finance projects aimed at energy efficiency, pollution prevention, sustainable
agriculture, fishery and forestry, the protection of aquatic and terrestrial
ecosystems, clean transportation, sustainable water management and the
cultivation of environmentally friendly technologies.”[2]
Just before
Easter there was huge news in the Australian financial markets a retail group
had closed a AUD 400m (USD 300m) green bond issue 4 times over subscribed – Wow!
Woolworths Group (ASX:WOW) proposes to use the funds raised “to
further reduce its environmental impact by becoming the first retailer in
Australia, and the first supermarket globally, to issue Green Bonds certified
by the Climate Bonds Initiative (CBI)”.[3]
What will
“Woolies” do with the money ? Install
commercial solar-roof-tops.[4]
Woolworths do
market themselves as “the fresh food people” and have positioned their brand as
being environmentally conscious and environmentally friendly.
Woolworths[5]
is almost a dualistic retail food retailer (its main competitor is Coles, and
together they oversee 80% of the Australian retail food market).
The “Green
Bonds” were based on Green Bond Framework in line with the Green Bond
Principles 2018 developed by the International Capital Markets Association.
Woolworth have prepared a compressive issue document.[6]
I am sure it is a template many will copy.
The Bonds were
rated BBB[7]
and paid 120 bp over the five year swap rate (2.85%) – today the yield is
4.05%. The key is not the price but the diversity of additional investors who
were interested. We are seeing global impact and ethical investors wanting both
social good and yield this bond offers both. Whilst the funds were raised from
only 90 investors there is clearly now a large pool for Woolworths, and others,
to return to.
Whilst this not
the first issue of “green bonds” in Australia, one can expect other firms to
follow this path.
I expect in
Australia Projects RH (www.projectsrh.com.au)
and internationally Tabatinga (www.tabatingasg.com)
we will see international firms using their ability to borrow to fund cost
reducing strategies but more importantly to assist renewable energy project by
providing not only offtake agreements but also a comfort layer of equity and /
or debt to projects which fit into their corporate energy procurement plan.
For Woolworths
Group this was not a lot of money and did not impact on their credit rating.
I would expect a
lot of corporate treasurers and boards are asking themselves can use this market to raise our environmental
profile and reduce our energy costs?
Paul Raftery
[1]
James Chen (Updated Mar 30, 2019) “Green Bond”, https://www.investopedia.com/terms/g/green-bond.asp.
[2] Ibid.
[5] ASX
Listed Woolworths is not related to companies using the name Woolworths
operating outside Australian and New Zealand.
[7] Rated
by S&P.
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