De Volksbank and SpareBank 1 Ostlandet hit the market each with €500m seven-year green bonds on Wednesday and were met by modest volumes of demand by recent standards, as rates volatility took its toll on investor sentiment, though green demand helped both secure high quality books.
The two green bonds were launched into a market occupied with moves in rates and equities, even while credit remained resilient.
Market participants noted that demand in the context of €800m apiece appeared a disappointing outcome when compared to some recent issues, for example a €1bn social bond from NatWest Group that drew €4bn on Tuesday.
However, they stressed that Wednesday’s deals, both for tighter-trading and lesser-followed, smaller credits, were never likely to replicate such demand and pointed to a softer market backdrop on the day.
“There is a bit of nervousness across the market overall,” said a syndicate banker. “You could feel it across the FIG and corporate space, bookbuilding was slower as investors took time to evaluate.”
In addition, a recent uptick in FIG supply means investors have more options to choose from.
“We’re just getting into a slightly different market environment… supply has started to pick up and we have had quite a bit of rate volatility, which is leading to an air of conservatism from a number of investors,” said a syndicate banker away from the leads. “Some are looking at these good credits coming with very low yields and having a second think.”
De Volksbank’s no-grow senior non-preferred transaction was marketed with initial price thoughts of mid-swaps plus 80bp area, via Deutsche Bank, ING, Natixis, NatWest Markets and Santander. The deal was launched at 65bp over mid-swaps.
“The quality [of the order book] is very good and the granularity is very similar to some recent SNP transactions, such as Swedbank’s [€750m issue on January 5] for example,” said the first syndicate banker.
As the deal was De Volksbank’s first SNP, fair value estimates ranged substantially, from 50bp to the low 60s. The deal offered a pick-up over SNP bonds from ABN AMRO and ING, which in the 2026-2028 part of the curve were bid in the high 40s to low 50s.
SpareBank 1 Ostlandet received a similar reception, albeit managing to tighten the spread slightly more on its senior preferred.
Leads ING, Natixis, Santander, Swedbank and UniCredit launched the no-grow deal at 42bp over mid-swaps, inside IPTs of 60bp area. The book peaked above €1.1bn before falling to €800m-plus.
“Demand dynamics may have been a tiny bit impacted because of the softer market, but in general a lot of the investors stuck with it because of the green framework and the profile of the issuer in terms of sustainability, which are super strong,” said a DCM banker at one of the leads.
The deal priced flat to a recent €500m seven-year green senior from SpareBank 1 SMN, which was bid at 42bp.
“These two names are very close peers, but then you have the other dynamic where Ostlandet haven’t been as frequent an issuer in the past and have historically traded a little bit wider than SMN, despite being better rated,” said the lead. “The issuer was keen to some extent to close the gap.”
De Volksbank’s deal stands out among the recent flow of green bank bonds as it is aligned with the current draft of the EU Green Bond Standard (GBS) and the EU Taxonomy.
Deutsche Kreditbank issued the first fully compliant bank bond earlier this month, but whereas its deal raised financing for renewable energy, De Volksbank’s issuance meets stringent standards proposed for green buildings.
Draft Taxonomy technical screening criteria, published by the European Commission in November, require that buildings constructed before the end of 2020 must have energy performance certificates (EPCs) of at least A to be Taxonomy-compliant within the relevant “acquisition and ownership” category.
The draft therefore deviates from Technical Expert Group on Sustainable Finance (TEG) proposals and the established market practice of selecting from the top 15% most energy efficient buildings in the local stock.
The stricter criteria has been widely criticised in feedback from green bond market participants, given that the definitions underpinning EPC labels vary from country to country and that in many countries less than 1% of the housing stock has the A label – meaning most existing green bond frameworks would not be fully compliant.
The Netherlands, however, is an exception, with 17% of labelled properties having an A certificate, according to ING analysts.
De Volksbank’s framework already required buildings to have an EPC Label A to qualify as an eligible asset, and the bank has since implemented stricter criteria.
Under the bank’s updated framework, existing buildings must also be in the top 15% low-carbon residential buildings in the Netherlands to qualify under the green buildings category. The bank made the change after engaging a building consultant which found that the stock of residential buildings with an EPC Label A exceeded the top 15%.
Market participants and analysts suggest that, given the the volume of opposition, the Commission may loosen the controversial criteria in the final version.
“It has been criticised by almost everyone in the market and no one seems to be pushing for this,” said a sustainability banker.