Posted inEurope

Coronabond market heats up

Two people face to face wearing masks, 2019-nCoV virus

While the issuance of EU coronabonds has been controversial among the bloc’s member states, supranationals and banks have embraced the financial instrument.

Matthew Kuchtyak, analyst at Moody’s Investors Service, explained to Expert Investor that, “for example, we’ve recently seen organisations such as the International Finance Corporation (IFC), European Investment Bank (EIB), African Development Bank and the Republic of Austria all announce transactions, some of which were labelled as social bonds, with an aim toward financing projects to support coronavirus response efforts”.

On 30 March, the Nordic Investment Bank (NIB) issued a covid-19 response bond worth €1bn, which matures on 6 April 2023.

The bond pays a coupon of 0.000%.

It was heavily oversubscribed with orderbooks in excess of €3.2bn.

European investors made up the largest part of the orders, with Benelux investors taking 19%, the Nordics 12%, France 6%, the UK 4%, other European countries 32%, Asia 21% and 6% other countries.

The use-of-proceeds will finance projects that seek to alleviate the social and economic impacts of the pandemic in the bank’s member countries.

It will support their recovery process and includes the financing of healthcare services.

Joint lead managers of the bond are BNP Paribas, Danske Bank, HSBC and JP Morgan.

Dutch investor PGGM invested €20m in the bond. A spokesperson of PGGM told Expert Investor: “The pricing was relatively attractive, and this bond has all the characteristics of a regular bond, so it fits into our mandate.

“Health is one of the themes that our client PFZW, a pension fund for health care workers in the Netherlands, selected to make impact. We have invested around €4bn in healthcare solutions with measurable impact.”

APG, a Dutch asset manager, bought €16m on behalf of its pension fund clients: ABP, bpfBOUW and SPW, a spokesperson of APG said.

Social bond market

Kuchtyak predicts that the crisis will lead to a short-term disruption to global debt issuance volumes, but said that its impact on the social bond market is uncertain.

“While we are expecting slower than originally anticipated volumes through the first half of this year, it’s too early to tell whether sustainable debt volumes will be more or less affected than the broader market,” he explained.

According to an estimate by Moody’s Investors Service, Climate Bonds Initiative and Dealogic in February, social bond issuance was expected to rise from $17bn (€15.5bn) in 2019 to $25bn in 2020.

European banks issued nearly $33bn of social and sustainability bonds, about 42% of the global total, from 2015 to 2019, according to the data providers.

Apac banks were responsible for almost $21bn of social and sustainability bonds over the same period, and banks in the Americas for nearly $5.9bn.

Systemic impact

Coronabonds, issued at state level to support businesses, could counteract inequality, which could worsen due to the impact of the crisis.

Subitha Subramaniam, chief economist and head of asset management at Sarasin & Partners, said, in regard to rising inequality: “Fiscal levelling-up policies actively seeking to reduce inequality across myriad dimensions – such as income, wealth, generations and rural-urban communities – have gained strength globally”.

“In the eyes of the levellers, now is the time for governments to throw off the shackles of austerity and invest in its citizens.

“If levelling-up policies manage to raise the productivity of lower skilled workers and the economy at large, this could indeed unleash a rising tide lifting all boats.”

Elena Johansson

Senior Reporter

Part of the Bonhill Group.