A $2.3 billion bond issue from one of the major banks is fairly common, almost run-of-the-mill and, so far this month, there has been at least six $1 billion plus bond sales from the majors. However, the latest Westpac bond sale is a little different from the regular everyday bond sale; of the two tranches, one is “green”.
Green bonds, also known as climate bonds, are a relatively new innovation in the otherwise financially-focussed bond markets. In June 2015, ANZ launched its inaugural green bond and prior to that issue, NAB issued its first green bond in December 2014 and non-bank corporates such as Stockland have also issued green bonds. The bonds are typically tied to particular projects which are proposed as mitigating climate change or projects which aid adaptation to climate change.
Westpac has priced this latest bond sale which comprises two tranches, one fixed and one floating. The floating component is worth $1.80 billion and is a standard vanilla 5 year bond. The fixed tranche, worth $500 million, is the green component. Westpac said the proceeds from this bond component will be used to finance renewable-energy and low carbon commercial property projects in Australia.
Pricing of green bonds differs little from that of ordinary bonds. In this case, the floating tranche was priced at 3 month BBSW + 117bps while the green bond tranche was priced at mid-swap + 117bps, or what one would expect from an ordinary bond. Further financial details are available in our New Issues table.