Italy Raises €8.5bn in Europe’s Biggest-Ever Green Bond Debut

Italy opened its first green bond offering this week and raised more than €8 billion, in what was the biggest debut sovereign green bond from a European issuer to date. 

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What is Happening?

1. The banks running the issuance raised around €80bn in orders for €8.5bn of debt. 

2. Since former European Central Bank president Mario Draghi became prime minister last month, other recent Italian bond sales have also attracted strong demand. 

3. Demand for the debt emphasises the popularity of green bonds, which provide funding for environmental projects and require borrowers to report to investors on how the funds are used.  

Tanguy Claquin, head of sustainable banking at Crédit Agricole, which was a co-manager on the transaction, said the sale was met with “very strong support” from investors, especially those that are required to consider environmental factors in their portfolios. Schroders, which invested in the bond, said the details provided on projects including low-carbon transport, power generation, and biodiversity were “really impressive.”

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1. The bond was issued with a yield of 1.547% and matures in 2045. The underwriters reduced the premium against a normal Italian government bond maturing in 2041 to 0.12 percentage points, a slimmer premium than the initial 0.15 points.

2. Italy follows several European countries, including Poland, Ireland, Sweden and the Netherlands, into the green bond market. France has issued 11 green bonds since 2017, totalling $30.6bn. Germany joined the market last year with two green bonds. In its budget on Wednesday, the UK announced plans to sell at least £15bn of green bonds in two offerings this year. Spain plans to offer a green bond in the second half of 2021. Analysts expect an initial €5-10bn sale at a 20-year maturity. 

Johann Plé, senior portfolio manager at AXA Investment Managers said the price investors paid for the green bond in Italy “remained fair” and that this “highlights that strong demand does not necessarily mean investors have to pay a larger premium.”

1. Green bonds are often more expensive and produce lower yields than their conventional equivalents. French government green debt is roughly 0.01 percentage points lower in yield than conventional bonds. 

Featured image by: Flickr