Environmentally friendly green bonds' growth spurt pauses

Reuters News
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Posted: Jul 01, 2015 11:01 AM

By Michael Connor

NEW YORK (Reuters) - Issuance of green bonds for financing low-carbon transport and other environmentally friendly projects has flattened after tripling last year, with some companies seeing little price advantage and possibly higher costs from selling the debt.

Deals for green bonds, including the first by issuers in India, totaled $18.22 billion in the six months through June, data from the non-profit Climate Bond Initiative showed on Wednesday.

That global pace suggests 2015 sales will match last year's $36.6 billion, which was up from $10.6 billion in 2013. The London-based CBI and some investment banks, however, had projected another full-year tripling.

"Usually the second half of the year is much stronger," CBI Chief Executive Officer Sean Kidney said. "We are predicting $70 billion with a stretch goal of $100 billion."

Green bonds were first issued by development banks and international agencies and are now used by diverse borrowers such as private companies and local governments. Environmentalists praise green bond-labeled securities as a way to battle global warming.

Corporate issuance of green bonds, especially by non-financial borrowers, has moderated in 2015, according to Moody's Investor Service. Only a handful of companies are doing green deals, while corporations accounted for a third of such volumes last year.

Deals this year have also been smaller on average, but they included a doubly oversubscribed 1-billion-euro offering from Dutch electricity group TenneT.

Green bonds' total returns have fallen 0.60 percent year to date, according to a Bank of America index.

The bonds often price on the finances and credit ratings of bigger corporate parents that can easily borrow at the best rates with traditional bonds, according to Moody's.

But the growing ranks of green bond buyers increasingly want detailed pledges from sellers that funds go to projects benefiting the environment.

They also more frequently require third-party assessments of deals on their tangible environmental benefits and seek ongoing monitoring and reports from borrowers that traditional bond buyers typically do not.

With global interest rates low, regular bonds are often a cheaper way for many companies to raise money, Moody's said.

Forecasters at Bank of America and elsewhere generally expect global green bond issuance to rise in 2015, with the second half boosted by Asian and emerging-markets borrowers looking to fund infrastructure.

(Reporting by Michael Connor in New York; Editing by Lisa Von Ahn)