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SSAs turn social with new partner for green

The Inter-American Development Bank this week offered a break from green bonds in the public sector sustainable and responsible capital markets, bringing a debut socially themed benchmark dedicated to funding projects in education, youth and employment.

“There is lot of focus on ESG (environmental social governance) investing but so far issuers have mainly concentrated on the E,” said Laura Fan, head of funding at the IADB in Washington DC. “We wanted to focus on the S. So we looked at our social sector lending and chose to highlight education, youth and employment. Of course, one of IADB’s lending priorities is climate change and sustainable energy within Latin American and the Caribbean. But there is so much focus on the environment by investors that other important sectors that we lend to were overlooked.”

A pair of other issuers are readying SRI bonds. NRW.Bank, which this week sold a $1bn five year regular benchmark [see separate story] hopes to print a second green bond at the end of October or the beginning of September. Meanwhile, Bank Nederlandse Gemeenten hired banks to arrange investor meetings ahead of a potential inaugural sustainability bond.

Crédit Agricole, Morgan Stanley and Rabobank will arrange the meetings, which will take place in Europe over the next two weeks, and a euro denominated sustainability bond could follow. The bond would support best in class sustainable municipalities, said the issuer. The evaluation will be supported by academic research and reporting.

EYE for an IADB

The Inter-American Development Bank raised $500m of four year money on Wednesday after its inaugural social bond — an education, youth and employment (EYE) note — attracted over $600m of orders. The deal marks further diversification in the SRI bond sector, where syndicated issues from SSAs have been dominated by green bonds.

“We regard IADB’s regular bonds as an SRI investment,” said Fan. “We have ratings from sustainability rating agencies like Sustainalytics and oekom research AG. EYE is just part of IADB’s overall lending. When you buy a regular IADB bond then you are also financing projects focused on infrastructure, environment, the development of financial markets, urban housing, water and sanitation and reform and modernisation of the state. We wanted to highlight education, youth and employment as an important sector for the IADB which has been overlooked in the market’s focus on green.”

Citi and Daiwa priced the bond on Wednesday at mid-swaps minus 5bp, that is at the tight end of guidance and initial price thoughts circulated earlier in the week of mid-swaps minus 4bp area.

IADB has 2018 paper outstanding that is trading at about minus 6bp to minus 6.5bp, said one of the leads, making the minus 4bp area initial price thoughts in line with where the issuer would start the pricing process on a conventional benchmark. The minus 5bp level implied no new issue premium, said Fan.

Proceeds of the EYE bond will be kept in a segregated account supporting eligible projects — which include programmes in education from preschool to secondary as well as compensatory education programmes, e-education and teacher education and effectiveness.

Other eligible projects include projects to benefit at-risk youth, school to work transitions and labour intermediation systems.

They will be invested according to IADB’s liquidity investment guidelines until disbursed for lending to projects in education, youth and employment.

Reporting will include a twice yearly project monitoring report, which will tell investors whether projects are on schedule for achieving certain targets — for example ensuring that a certain number of children are educated by trained teachers. 

Among the 24 investors that bought the deal were Accion, AP2, the Bank of Korea, Breckinridge Capital Advisors, the Chugoki Bank, Mirabaud & Cie Geneva, Nikko Asset Management Europe, Nordea Funds, Praxis Intermediate Income Fund, Taiyo Life Insurance Company, Threadneedle Social Bond Fund, TIAA-CREF Asset Management, United Nations Development Programme and Zurich Insurance Group.

“There were at least eight investors who had not purchased IADB bonds in the past four years that participated and among this group, many were new investors to the IADB name,” said Fan. “This bond has clearly heightened awareness of our role in the SRI sector. We hope the awareness will create further partnerships with organisations in areas such as co-financing, strategic alliances and non-reimbursable technical co-operation.”

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