ING HoldCo, Commerz SNP hit green highs

ING sold the largest green bond from a European bank on 8 November, a EUR2.6bn equivalent inaugural green senior HoldCo transaction, after Commerzbank had on 16 October chosen the senior non-preferred format for its green bond debut, a EUR500m deal that attracted unusually high foreign demand.

ING’s transaction was the first green issuance from the Dutch group since it debuted in the green bond market with EUR500m and $800m deals from ING Bank in 2015.

Under its updated framework, ING has earmarked some EUR4.5bn of loans as eligible for the proceeds of green bond issuance, with EUR2.9bn relating to renewable energy (wind and solar) and EUR1.6bn to green buildings. According to a pre-issuance impact report, an estimated 4.3 million tonnes of CO2 equivalent of greenhouse gas emissions are avoided/reduced through the portfolio.

“It’s clear that investors are increasingly looking to use their portfolios to help fight the growing threat of climate change,” said ING head of sustainable finance Leonie Schreve. “We have to make an impact with our money and help investors be able to do the same.”

Since its debut, the Dutch group has moved to a HoldCo resolution strategy, with senior issuance now primarily done out of the ING Group holding company entity to contribute to the group’s TLAC and MREL buffers.

The new 144A/Reg S issuance for ING Group, rated Baa1/A-/A+, was split into EUR1.5bn 12 and $1.25bn (EUR1.1bn) long seven year tranches. The euro tranche is the biggest senior bank green bond in euros, while the US tranche is the biggest green bond issued by a European bank in any format, and the combined transaction is the largest green bond from a European bank.

The leads went out in the morning of 8 November, European time, with initial price thoughts of the mid-swaps plus 150bp area for the 12 year euro tranche and Treasuries plus 170bp for the long seven year dollar tranche, stating that each would be benchmark-sized. The new issue hit a fixed income market that had reacted positively to US mid-term election results coming out as expected the previous morning.

After a little over an hour orders for the 12 year euro tranche topped EUR1bn, and after around an hour and a quarter the size was set at EUR1.5bn on the back of EUR3.3bn of demand, pre-reconciliation, and guidance at 135bp-140bp, will price in range. Half an hour later books were closed at EUR4bn, pre-reconciliation, and the pricing set at mid-swaps plus 135bp.

Pricing on the long seven year dollar tranche was tightened from the IPTs of 170bp over to the 155bp area, plus or minus 5bp, and the $1.25bn deal was then priced at 150bp Treasuries. The book reached as much as $3.2bn, and $2.75bn was good at re-offer.

Fadi Attia, managing director, US dollar FIG at joint bookrunner Crédit Agricole CIB in New York, put the new issue premium at a relatively low 7bp, with fair value seen at around 143bp over based on an interpolation of the issuer’s outstanding five and 10 year paper, as well as comparables such as French names in senior non-preferred format.

“Given the market volatility throughout the month of October, recent trades have only been moving between 10bp and 15bp from IPTs to pricing, so the fact that we’ve been able to move 20bp and maintain more than two and a half times oversubscription underscores the success of this trade,” he said, “particularly given that it comes on the back of over EUR6bn of HoldCo issuance from them across dollars and euros just a month ago.

“That is testament to the fact that US investors are very comfortable with ING as a credit and their exposure at the HoldCo level from a bail-in perspective. The green bond element helped scope out demand even further, taking advantage of a growing pool of green money in US dollars — some of which is dedicated portfolios.”

Attia noted that there has been little green bond supply in dollars relative to the European market.

“This whole effort, in terms of establishing liquid benchmarks in dollars as well as euros, is very welcome, especially in the FI bail-in space,” he said. US accounts were allocated 71% of ING’s dollar tranche, Asia 18%, and Europe 11%.

ISS-oekom provided a positive second party opinion on the green bond, also confirming its alignment with the Green Bond Principles, and ING obtained pre-issuance certification from the Climate Bonds Initiative.

Commerzbank finds broad home

Commerzbank’s debut green bond on 16 October, a EUR500m five year senior non-preferred benchmark with proceeds earmarked for renewable energy financing, attracted some EUR1.25bn of demand from over 100 investors to the debut, with 87% placed outside Germany.

The German bank’s framework initially encompasses solar and onshore and offshore wind energy projects in Germany and abroad, with the EUR503m of assigned assets avoiding an estimated 755k tonnes of CO2 per year.

“Commerzbank is as an institution very much committed to sustainability,” said Franz-Josef Kaufmann, deputy head of capital management and funding and head of strategic markets and projects at Commerzbank (pictured below). “The bank has a significant portfolio of assets in our centre of competence energy, where we finance renewable assets, and in that portfolio we have a meaningful amount of loans that we felt would make a strong underlying for a first green bond.”

The framework has a second party opinion from Sustainalytics, which noted that it is “robust, credible and transparent”, and also aligned with the Green Bond Principles. The new issue was preceded by a roadshow focusing on green bond investors.

“In addition to our framework and the structure of the green bond, we have also had very interesting discussions with investors about Commerzbank’s sustainability strategy and how the green bond programme fits into this,” said Mirko Gerhold, head of DCM bonds solutions at Commerzbank, which structured its own programme and was joint bookrunner.

Commerzbank chose to issue its inaugural green bond in senior non-preferred format.

“When we consider issuing a green bond, it needs to fit into the overall funding requirement of the bank,” said Kaufmann. “The overwhelming success of our inaugural preferred senior bond meant that it shipped in more funding than originally expected, and with that we covered the majority of our preferred funding needs.”

“We still required a bit of non-preferred funding, and that’s why we decided to use the non-preferred instrument as the format for this green bond.”

Fixed income markets had been volatile in the two weeks leading up to the new issue.

“Obviously we had been following the market when we were on the road, and we saw that there had been a significant amount of volatility,” said Kaufmann. “The interesting aspect was that beside all the noise we had seen, credit spreads — in particular credit spreads around our name — had been fairly stable. And that gave us a bit of comfort that structurally the market should for credit be in decent shape.

“We decided not to jump immediately on Monday into a market still digesting the volatility of the week before, but thought that the second day, i.e. Tuesday, could be a good day, and looking back I think it was the right choice. Capital markets and equity markets recovered, we saw numerous transactions announced throughout the day, and we got a very strong reception for our bond.”

The lead managers went out with initial price thoughts (IPTs) of the 105bp-110bp over mid-swaps for the EUR500m no-grow five year senior non-preferred benchmark. Fair value was put at around 80bp over mid-swaps, with Commerzbank’s outstanding September 2023s bid at 78bp over mid-swaps and May 2024s at 93bp over.

“To generate momentum we went out with the 105bp-110bp IPTs, having in mind to break through the 100bp level, and even 95bp,” said a syndicate banker at one of the leads. “Looking at the book and dynamics, we could have achieved the latter, but the issuer decided to be fair and grant the 15bp NIP in recognition of the success of the roadshow and investors’ engagement.”

The deal was priced at 95bp over mid-swaps on the back of over EUR1.1bn of demand from more than 100 accounts, with demand having peaked around EUR1.25bn before the final pricing was set. Some 87% of the paper was placed outside Germany, which bankers noted was particularly high for a German bank issue.

“When arranging the roadshow, we very much targeted seeing green investors,” said Kaufmann, “and that’s how we chose the regions and investor meetings. Looking into the allocations, some 60% was to investors in so-called green centres, such as the Benelux, France and Scandinavia. It is hard to identify exactly which investors are green, but I would say that we had above EUR500m of greenish investors in the book — either green investors or other investors with green portfolios.

“Looking at the success of the trade,” he added, “I think we have chosen the right strategy and created a robust structure that has been accepted by the green investor community, which very much stresses green frameworks to get an idea how robust they are.”

Those involved in the trade said it was unclear if the green nature of the bond had influenced pricing, but said it had definitely helped the strong outcome.

“Investors are still craving green supply from banks, which has remained relatively subdued this year, while pressure for green bond investments and subsequent demand keeps on increasing,” said André Bonnal on the FIG syndicate desk at joint bookrunner Crédit Agricole CIB.

Main photo credit: ING/Flickr