Germany gets 30 billion euros of orders for its debut green bond

Berlin

GERMANY racked up 30 billion euros (S$48 billion) of orders for its first green bond as it sets out to dominate the growing market by the end of the year. The price guidance for the 10-year securities was one basis point tighter than the existing conventional bond, according to a person familiar with the sale, who asked not to be identified because he is not authorised to speak about it.

"It clearly shows there is a lot of investor interest," said Floortje Merten, a strategist at ABN Amro Bank NV. "This will help Germany to build that green curve soon."

Another maturity is due to be sold in the fourth quarter, taking issuance this year to around 11 billion euros, Joerg Kukies, Germany's Deputy Finance Minister, said last week. While the nation has lagged others in issuing debt to be used for environmental projects, its entry is significant for the size of issuance, and plans to twin the bonds with conventional securities in an effort to build a more liquid market. The country aims to be the benchmark issuer for green debt in Europe, according to Mr Kukies, 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 zero per cent, with similar-maturity conventional bonds currently yielding around minus 0.45 per cent. Commerzbank AG, 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, as a summer lull in issuance ended. 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 Covid-19 crisis to be a green one.

Barclays Plc, Credit Agricole SA, Deutsche Bank AG, JPMorgan Chase & Co and UniCredit SpA are also joint lead managers. ABN's Mr Merten highlighted that the green bonds could be switched for conventional bunds if the price drops below them, helping to provide a floor. "These bonds will have their own captive set of investors," said Rohan Khanna, a rates strategist at UBS Group AG. Germany's sale "is a welcome gift", he said. BLOOMBERG