Macquarie University scores with sustainability bond in domestic market return
Macquarie University became the third issuer of sustainability bonds in the Australian market, and the first university to price a dual-tranche deal, with its A$250 million (US$179.5 million) transaction priced on 29 August. With impact reporting still in its relative infancy in Australia, the university says the transaction provided the opportunity to show leadership in this area.
The transaction, which was split between A$200 million 10-year and A$50 million 25-year tranches, and was led by HSBC and National Australia Bank (NAB), is the first university deal to print in the Australian market in 2018. Four transactions – including Australian Catholic University (ACU)’s A$200 million 10-year sustainability bond – were priced in the latter half of 2017 but prior to this only four deals priced since 2010, according to KangaNews data.
Robin Payne, chief financial officer at Macquarie University in Sydney, says the inclusion of sustainability criteria was central to the transaction when planning began 12-18 months ago.
Brad Scott, Sydney-based director, corporate debt markets origination at NAB, says the fact that Macquarie University has a clear commitment to principles around sustainability meant it was logical to bring a sustainability bond to the Australian dollar market.
Impact reporting across green, social and sustainability bonds is still in its early stages of evolution. We see this as an opportunity for the university to set an example of what good reporting should entail, so we have made strong commitments and worked with investors to ensure we have a framework which helps the sector grow.
“Macquarie University has commitments and strategies for implementing sustainability into its buildings, water, pollution and energy resources, along with social-enhancement objectives which are strongly aligned to the United Nations Sustainable Development Goals [SDGs],” says Scott.
Macquarie University established its sustainability financing framework in good time, setting out how proceeds from any transactions will be used and how they align with the SDGs. The framework also sets out how projects will be evaluated and reported on, as well as exclusionary criteria for projects that specifically cannot be financed with the proceeds.
Payne says: “Impact reporting across green, social and sustainability bonds is still in its early stages of evolution. We see this as an opportunity for the university to set an example of what good reporting should entail, so we have made strong commitments and worked with investors to ensure we have a framework which helps the sector grow.”
Andrew Duncan, managing director, head of debt capital markets at HSBC in Sydney, reveals that positive feedback on the issuer’s sustainability framework came through from the moment marketing began.
The demand was solid, with a final orderbook of A$440 million for the 10-year tranche. This supported final pricing of 92 basis points over semi-quarterly swap, inside 95 basis points over swap area indicative guidance.
According to KangaNews data, this is the equal tightest-priced 10-year university deal in the Australian market (see table).
Australian market university sector 10-year deals
|Pricing date||Issuer||Rating (S&P/Moody's)||Volume (A$m)||Maturity date||Spread (bp/s-q)|
|29 Aug 18||Macquarie University||NR/Aa2||200||7 Sep 28||92|
|1 Dec 17||University of Wollongong||AA-/NR||175||8 Dec 27||92|
|18 Aug 15||University of Sydney||NR/Aa1||200||28 Aug 25||95|
|25 Jul 17||Australian Catholic University||NR/Aa2||200||3 Aug 27||97|
|11 Jul 17||University of Technology Sydney||NR/Aa1||300||20 Jul 27||97|
|11 Nov 15||Australian National University||AA+/NR||200||18 Nov 25||105|
|31 Aug 10||Macquarie University||NR/Aa2||250||9 Sep 20||170|
Source: KangaNews 5 September 2018
Duncan says 42 per cent of the transaction was allocated to investors that are classified as sustainable under HSBC’s socially responsible investment (SRI) criteria.
Meanwhile, deal statistics provided by NAB reveal that approximately 83 per cent of the 10-year tranche was allocated to domestic investors, with the majority of the remainder going to investors in Asia. Eighty-five per cent of this tranche came from asset managers, with banks and middle-market investors accounting for the balance.
“It was expected that the deal would be primarily placed with Australian investors. However, there were accounts in Asia that particularly liked the credit largely because of an increasing internal focus on SRI,” Duncan comments.
A lack of 10-year corporate issuance in the Australian market compared with 2017 is another reason for the robust investor support, Scott suggests.
According to Scott, the 25-year portion of Macquarie University’s deal makes it the world’s longest sustainability bond tranche. It is also the second university transaction to price in the Australian market with 25-year tenor, after a A$100 million University of Melbourne transaction in December 2017.
Scott says that Macquarie University was open to – and ultimately received – reverse enquiry for the long-dated tranche during the deal’s execution. As a result, the 10-year tranche was capped at A$200 million to satisfy the A$50 million of long-tenor demand. According to Duncan, this demand came from an Asian-based life-insurance investor.
Payne says: “We are aware that these opportunities arise from time to time, where the cross-currency basis swap works and brings in investor demand, so we made it clear we were open to accepting reverse enquiry to lock in long-term debt at what are historically very low interest rates.”