Greening tier-two

In September 2019, ANZ Banking Group (ANZ) returned to its issuance of UN Sustainable Development Goals (SDG)-linked bonds with a euro tier-two deal. There is also a bid for subordinated labelled deals in Australian dollars, as evidenced by Mitsubishi UFJ Financial Group (MUFG)’s green tier-two bond priced the same month.

ZAUNMAYR ANZ chose the euro market for its return to SDG bond issuance. As this jurisdiction is the most developed global market for GSS bonds, might we see the banks focus their issuance efforts in Europe in future?

TAPLEY The main consideration for the euro transaction from a sustainability perspective is the sophistication of the investor base. European investors understand our framework. We are speaking to assets that fit a selection of the SDGs and Europe is where we understand there to be the most sophistication around understanding what this means.

WHITE It is clearly the broadest market for diversification. We had two teams in Europe for a week and touched more than 100 investors during the roadshow. The deal was the first tier-two SDG bond from a major bank, which added to its appeal.

There is typically a big focus from offshore investors on Australian property valuations and exposure. However, on the recent ANZ roadshow, there were minimal questions on property – which is testament to investors’ focus of on the ESG elements of the transaction.

PAUL WHITE

The domestic market is untested for a tier-two green bond but the trend has been that these products do increase investor diversity in the Australian dollar market.

PAUL WHITE ANZ

ZAUNMAYR When Mitsubishi UFJ Financial Group (MUFG) issued its Australian dollar green bond, the issuer said the GSS space was a good way to find incremental liquidity for its total loss-absorbing capacity (TLAC) requirement and added it was keeping suitable assets in reserve for TLAC deals. Do other banks see the GSS space as a good way to find tier-two liquidity?

MITCHELL It is interesting that ANZ chose to issue a tier-two bond with a GSS overlay. A handful of issuers in Europe have looked at doing this, but it is not something investors should expect from NAB in the near term.

If there is broad acceptance and investors have an appetite for GSS tier-two, it would be incumbent upon us to feed that appetite. However, capital is a reasonably distinct asset class and I am not sure we would see the benefit of the accretive or targeted demand we are looking for when it comes to GSS issuance.

WHITE MUFG’s deal was well received and there was incremental demand from investors in Australia and offshore. The domestic market is untested for a tier-two green bond but the trend has been that these products increase investor diversity in the Australian dollar market.

There is no reason why the domestic market couldn’t be considered for this type of issuance and I think it would be well received. The ANZ euro SDG tier-two deal certainly attracted incremental demand.

JENKINS The most recent deals that have come to the domestic market show the continued growth of the investor bid. New South Wales Treasury Corporation had more new investors, bigger ticket sizes and more diversity in its sustainability bond deal. We were all surprised on the upside, again, with the size and the scale of demand.

The same can be said for MUFG. Compared with some of the Japanese banks that came earlier in the year, you could say there was a different set of investors in the pool.

MUFG was focused on the incremental bids and cost. It is no secret that the deals need to be cost-competitive relative to offshore markets. It was certainly the case in this deal. This can’t be guaranteed from the outset: you need to have conviction. MUFG did but it was not an easy journey to get there.