Paying a greenium
Buyers of Australia's first ever green bonds have been prepared to accept lower returns for exposure to the government’s environmental programs.
Australia’s first ever green government bond issue has been widely hailed as a success, with the three-times oversubscribed tender attracting bids from 105 domestic and international investors.
The Australian Office of Financial Management (AOFM), which ran the transaction on behalf of Treasury, yesterday raised $7 billion in 10 year bonds at a yield of 4.295%. That was lower than the yield on the comparable benchmark issue, implying that it’s theoretically cheaper for the government to raise green debt than conventional debt.
The raising was specifically designed to appeal to ESG-focused investors, particularly offshore ones. But it was actually local funds that primarily snapped up the bonds. “One of the biggest standouts of the trade was the strong support from domestic investors accounting for 65% of allocations," said UBS executive director Cameron Lofstedt, one of the joint lead managers on the issue.
"A lot of focus was on the offshore investor base and how they would drive the greenium - but Australian investors were the largest supporters, a testament to the development of the ESG space in Australia”.
