Germany sells debut green bond on path to market dominance

[BERLIN] Germany is selling its first green sovereign bonds, a market the nation could dominate by the end of the year.

The new 10-year securities were given initial pricing guidance parallel to those on conventional peers Wednesday, according to a person familiar with the sale, who asked not to be identified because they're not authorised to speak about it. Another maturity is due to be sold in the fourth quarter, taking issuance this year to around 11 billion euros (S$17.7 billion).

"These bonds will have their own captive set of investors," said Rohan Khanna, a rates strategist at UBS Group. "This is a welcome gift." While Germany has lagged other European nations in issuing debt to be used for environmental projects, its entry is significant for the size of expected issuance, and plans to twin the bonds with conventional government securities in an effort to build a more liquid market.

German Deputy Finance Minister Joerg Kukies said last week that the country was aiming to be the benchmark issuer for green debt in Europe, taking up a mantel that it has long held with its normal bonds thanks to its AAA rating.

The green debt has a coupon of 0 per cent, with similar-maturity conventional bonds currently yielding around minus 0.45 per cent. Commerzbank, one of the bookrunners, estimates that Germany could raise between 6 billion euros and 7 billion euros. That would be about a 10th of the global market.

Sweden saw investor demand at more than double the amount offered when it raised US$2.3 billion in its debut green bond sale this week. Poland was the first to issue such securities in 2016 and France is currently the biggest issuer in the world.

The European Union looks set to follow for part of its 750-billion-euro recovery fund, which would be a game changer for the global market. EU leaders and German Chancellor Angela Merkel have said that they want the region's recovery from the coronavirus crisis to be a green one.

Barclays, Credit Agricole, Deutsche Bank, JPMorgan Chase and UniCredit are also joint lead managers.

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