Local market-building goal to keep Auckland Council in New Zealand for green debut
Auckland Council plans to tap the New Zealand dollar market for its debut green bond during 2018, as the issuer aims to play its part in providing the supply needed to catalyse domestic funds growth. The council revealed on 7 March that it plans to become a green-bond issuer this year, though it is yet to develop detailed transaction plans.
For instance, the scale and timing of a debut green-bond issue from Auckland Council remains to be decided based on market conditions and funding need. John Bishop, Auckland Council’s treasurer and general manager, transaction services, confirms that it hopes to issue a domestic green-bond transaction later in calendar 2018.
The early commitment to bringing a New Zealand dollar deal rather than issuing in another currency in which Auckland Council is active – such as Australian dollars or euros – is based on a desire to support the development of a market for the green asset class locally.
Bishop explains: “Green-bond markets are more developed offshore than is the case in New Zealand, and we are certainly not saying we will only ever issue green bonds in New Zealand. But to build funds locally investors need to have product to buy, and we want to help encourage the development of a domestic green-bond market by issuing in New Zealand.”
By March 2018, there has only been a single green-bond print in the New Zealand domestic market – by International Finance Corporation in 2017. Contact Energy has completed a green debt-funding programme but has yet to issue new bonds under it.
The issuer is also keen to highlight its existing environmental agenda via the capital markets. Bishop says it sees green-bond issuance as an ideal opportunity to do so and is “looking forward to the response from investors and the wider market”.
The proposed green bonds will be subject to a green bond framework, on which Auckland Council is being assisted by ANZ. The framework follows the model established in Australia of using the International Capital Market Association’s green-bond principles and the climate bond standard regulated by the Climate Bond Initiative.
John Mauro, Auckland Council’s chief sustainability officer, explains that the council wanted to use a recognised standard and was happy to draw on experience from the more developed Australian market to do so.
Mauro says Auckland Council wants to develop a broad asset base for its green-bond framework, but in the first instance the two “obvious candidates” are transport and water assets. Auckland Council has significant infrastructure capex pending over the coming decade including acting as the source of financing for Auckland’s water and wastewater provider, Watercare.
In a statement announcing the green-bond plans, Auckland’s mayor, Phil Goff, said: “We are investing significantly in our water infrastructure, to clean up our harbours and waterways, and in public transport infrastructure to reduce emissions and decongest our roads. These projects are an attractive investment opportunity for investors who are allocating larger segments of their portfolios to climate change and green investment activities.”
Going forward, the conclusion of Auckland Council’s 10-year plan in mid-2018 should give a clearer indication of what proportion of the asset book could in theory qualify for green funding.
As with all Auckland Council’s domestic issuance, the forthcoming green-bond debut is likely to be issued in retailable format. As a high-grade, relatively low-yielding issuer the council tends to attract predominantly institutional demand for its bonds, but Bishop tells KangaNews: “There could be some additional interest in a green deal on the retail and smaller institutional side, relative to what we would see in a ‘normal’ Auckland Council deal. But obviously it’s impossible to guess the extent of any incremental interest at this stage.”
The issuer also emphasises that a transaction is not imminent. No money is currently being sought and green bonds cannot currently be applied for under any potential offer. If an offer is made, it will be in accordance with the New Zealand Financial Markets Conduct Act.
High-grade issuers' yearbook 2018.
The annual guide to Australian and New Zealand sovereign-sector issuers.