The Australian Office of Financial Management plans to sell its inaugural green bond in the week beginning June 3, having recently completed a month-long roadshow across Australia, Asia, Europe and North America. Australia (Aaa/AAA/AAA) can expect a good reception for the offering, with a record €84bn (US$91bn) order book for Italy’s €9bn October 2037 green BTP auction this week underscoring current elevated investor appetite for ESG-related sovereign paper. The AOFM will hope to replicate the success of New Zealand (Aaa/AA+/AA+), which drew 2.5 times cover for its first sovereign green bond in November 2022, a NZ$3bn (US$1.8bn) print of May 2034s that some bankers said achieved a 3bp greenium. That transaction attracted several new names, including some dedicated ESG investors, and a larger offshore participation of 56% versus 46% for the previous, standard 10-year sale of May 2032s in June 2021. Australian semi-government paper has not always been welcomed by some green-focused foreign investors. Most famously, Sweden's Riksbank has boycotted Queensland and Western Australia bonds since 2019, citing these states' high carbon emissions. This boycott failed to spread, however, with huge demand seen for all subsequent green and sustainability benchmark offerings from six Australian states, including the two major coal-producing ones. "Given the hot local market and high global demand for green sovereign paper, I think the deal will be very well received by investors both domestically and offshore," said a DCM manager away from the transaction. CBA, Deutsche Bank, NAB, UBS and Westpac are joint lead managers, while NAB and UBS are also joint structuring advisers for the bond. Green framework The Australian government published its green bond framework in December with a second-party opinion from independent consultancy Sustainalytics. Sustainalytics' characterisation of the framework as credible and impactful was based on the four core components of the International Capital Market Association's Green Bond Principles 2021 – use of proceeds, project evaluation and selection, management of proceeds and reporting. “The green bond programme reinforces and underpins Australia's environmental credentials. It will help increase private-sector participation and investment, which is essential to decarbonising the economy and supporting natural resource and biodiversity conservation,” says the framework. The government will allocate total net proceeds of any green bonds to finance and/or refinance eligible green expenditures that meet green bond criteria in 10 specific areas. These are: renewable energy, energy efficiency, clean transport, green buildings, climate change adaptation, environmentally sustainable management of living natural resources and land use, biodiversity conservation, sustainable water and wastewater management, circular economy, and pollution prevention and control. Sectors excluded are those related to nuclear energy, arms and ammunition, chemical weapons, alcohol, tobacco and other recreational drugs, gambling, fossil fuels and programmes that assist Australia’s highest greenhouse gas emitting facilities.
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