National Australia Bank (NAB)’s last euro senior deal was also its most recent green bond, which it priced in May 2022. In the time since, none of the major banks have executed labelled issuance in senior-unsecured format in any market, but ANZ and Commonwealth Bank of Australia have issued labelled euro-denominated tier-two capital. KangaNews understands Macquarie Bank is exploring a euro senior green-bond transaction as of 27 August.

The new NAB trade is almost a carbon copy of the bank’s 2022 transaction, apart from the new deal’s slightly larger volume – at €1.25 billion (US$1.4 billion) – slightly shorter tenor and the deals falling on different sides of the European summer. The previous deal priced in May 2022.

Michael Johnson, executive, funding and liquidity at NAB in Melbourne, says the new transaction was strategic and that the timing worked well for the bank’s plans for the year. NAB left a timing gap in the market after its subsidiary, Bank of New Zealand, printed a euro senior transaction in July.

“We balanced timing around our needs, the transactions we did in Q2 and the quiet window in Europe during their summer. This made mid-late August the right time,” Johnson explains. “A euro senior every two years – or more often – is not an expectation for us and we have less need to access all core offshore markets in a year has decreased particularly with the strength of the Australian dollar market.”

Euro senior economics have also predicated against frequent issuance in recent times. On this occasion, Johnson says the deal priced roughly flat to NAB’s US dollar curve – a feat that has been challenging to achieve in recent years. “We are open to doing euro senior issuance more often if it works from an economic standpoint, and aligns with our funding needs and investor demand,” he continues.

Johnson suggests there was likely a greenium of 2-3 basis points but admits is difficult to quantify with certainty. This is particularly so because of the major banks’ generally reduced need to access euro senior funding in recent years – albeit they have been active in euro covered bonds – which created added attraction in addition to the green label.

“Since the pandemic, there has been limited euro senior supply from Australian bank issuers. Scarcity of issuance from high-quality issuers like NAB certainly supports transactions and investors looking for higher quality paper, which doesn’t come very often. This scarcity value helps with demand. Likewise, there is a pool of investors that particularly seeks to invest in green bonds, which again provides additional demand,” Johnson tells KangaNews.

Johnson says the euro market will likely continue to be NAB’s market of choice for future green issuance. The bank has issued green bonds in Australia dollars but Johnson adds: “We are not ruling out a green transaction in Australian dollars or other currencies, but for the time being it works best in euros.”

This is not to say every euro senior will only be in green bond format, though. It depends on the scale of the eligible collateral pool earmarked against NAB green bonds – which includes green assets from its corporate and institutional bank.

But when it can issue in green format, the view is that Europe provides depth and diversity of demand that is unmatched by other jurisdictions. “This provides the bank execution benefits – whether related to overall demand or pricing,” Johnson says.