On the heels of a Exotic Debt Bargain, Canada’s green-bond market waits for more

Canada’s nascent market for green bonds is set to heat up following an offering in late August revealed just how much demand there is for this sort of debt.

Export Development Canada (EDC), a federal Crown corporation that lends money to exporters, increased $500-million final week allowed for companies that promise to help the environment. The deal, that is the first time EDC has exploited Canada’s credit market in a decade and its first-ever Canadian green bond, attracted almost 3 times as many orders as there were securities available.

While there’s been a boom in green bonds worldwide, the market is still tiny in Canada. EDC and the bankers that brought the deal to the marketplace state its success will spur more green bond offerings from both the private and public sectors to help fund assets like solar and wind projects, energy-efficient buildings and public transit.

“There is more demand than there is supply. I believe this bond indicates {},” said Nancy Kyte, a senior portfolio manager at EDC.

Just “because people are not coming and issuing does not indicate that there isn’t lots of need out there. The market’s possibly further along than [people] were judging,” she added.

EDC has plans to capture that need by doing more in this area. The credit bureau is helping more clean-technology companies do business overseas, fuelled by the aid of the Liberal government. The most recent federal budget set aside more cash for EDC to lend to clean-tech businesses and grow its vulnerability to the budding industry.

“If we are able to construct a larger asset book, I could see us coming into the green market more often and with larger numbers,” said Ken Kember, the chief financial officer in EDC.

Its most recent selling of green bonds was organized by underwriters Merrill Lynch, RBC Dominion Securities Inc. and TD Securities Inc..

The bond, which provides a fixed rate of 1.8 percent and matures in five decades, was sold to 54 investors, the bankers said. Pretty much all of them have mandates to invest in green initiatives. Sixty percent of the buyers were established in Canada, while 29 percent were in america, 7 percent in Europe, 2 percent in Asia and another two percent found in the Middle East. More than 60 percent of the buyers were asset managers.

Investors are devoting more funds to encourage issuers that guarantee to be ethical or sustainable. The idea is called environment, social and governance (ESG) investing. The movement has taken longer to get off the ground in Canada, says Suzanne Buchta, international head of green bonds in Merrill Lynch, which might be why green bond issuance in Canada remains smaller relative to other areas.

But that has been changing — and EDC’s offering last month has breathed new life into a marketplace that’s been bubbling beneath the radar.

“You see an increasing number of investors incorporating ESG metrics in their decision making,” said Amy West, head of socially responsible finance at TD. “The achievement of EDC’s green bond actually validates the strength and thickness of this developing market. The next focus will be encouraging other things, as the marketplace evolves, to get involved.”

Before EDC, the provinces of Ontario and Quebec, the European Investment Bank and TD Bank had issued a few of the biggest green bonds from the Canadian marketplace.

However, EDC and the bankers who worked on its own trade say they’ve been fielding more calls from the past week from other corporate and government entities that have inquiring whether they have what it takes to bring a green bond to advertise.

A few of those factors include the size of the financing plan, their asset mix and if they have the framework in place internally to issue and monitor a green bond, ” says Jamie Hancock, head of Canadian debt capital markets at Merrill Lynch.

A whole lot of issuers say “they are interested in issuing green but do not have the funding should carve out a green stage,” he added. To make it worth their while, issuers should sell at least {}500-million value of green bonds since EDC did.

“There isn’t so much green paper that [investors] can purchase in Canada,” stated Alex Caridia, the head of government fund at RBC in Toronto. “Overall, it is growing. What would be wonderful to see is that expansion spill over into the corporates and financials.”

Courtesy: The Globe And Mail

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