Citigroup has made its long-awaited jump from one of the top green bond lead managers to issuer of green notes, in a landmark €1 billion ($1.1 billion) transaction.
The three-year deal marks its first green bond issuance, and charts a new path for a bank that has been highly influential in the market’s development.
As a lead manager, it has been involved in green deals worth a combined total of $24.2 billion since the market’s inception – putting it fourth in the league table of lead managers, behind only Bank of America Merrill Lynch, Credit Agricole CIB and HSBC, according to Environmental Finance’s bond database.
Proceeds from Citigroup’s bond will fund renewable energy, sustainable transportation, water quality and conservation, energy efficiency and green building projects.
Sustainalytics said in its second opinion that the bond aligns with the 2018 Green Bond Principles, adding that it ‘viewed positively’ the use of proceeds, project evaluation, management of proceeds and reporting involved in Citigroup’s framework.
Philip Brown, managing director of green and social bond origination at Citi, told Environmental Finance that the deal harnesses “enthusiasm within Citi Treasury to take advantage of the momentum behind environmental finance… and also reflects the interest that the treasury sees from investors who are asking Citi to get involved [in issuing a green bond]”.
He said this was reflected in both the demand for the bond – which attracted a final order book worth €3.1 billion – and pricing.
“We started out with initial price thoughts of about mid-swaps plus 75 basis points (bps). We had aspirations for a pricing in the 60 bps to 65 bps range,” Brown said. “The final pricing of MS+58 reflected the size and strength of the order book.”
The deal also marks the first EUR-denominated issuance from a US-based bank.
“We saw a new issue concession of five bps to our EUR curve – in terms of financial institution issuance in Europe this year that is the tightest concession to the curve, for a new issue pricing year-to-date,” Brown said.
The end of the European Central Bank’s so-called quantitative easing (QE) programme, in December 2018, is likely to spur greater issuance from banks and corporates – from both of which, supply of green bonds has so far been subdued relative to demand, Brown said.
“As we come out of QE and experience the widening of credit indices, there is an ever more compelling case that green bonds can deliver a pricing advantage for issuers.
“As demand for green bonds exceeds the supply, it follows logically that issuers will start to see more diversified and oversubscribed order books - which is inevitably going to lead to some sort of advantageous execution.
“We have seen last year, and will see this year, a significant widening of corporate credit spreads, as evidenced by the doubling of the [IHS Markit] iBoxx corporate investment grade credit index.
“QE succeeded in its desired effect of compressing credit spreads, but in a post-QE environment, we see the excess demand for green bond issuance being a more significant factor in the creation of a positive price tension within corporate new issue order books,” Brown said.
Although issuance from banks is “less than investors would like to see”, the amount of issues did increase significantly last year – momentum that is likely to continue in 2019, he added.
Citi was bookrunner and the sole green structuring advisor on its green bond. The notes, which will settle on 29 January, bear a coupon of 0.500%, and will be listed on the Luxembourg Stock Exchange.
It received ratings of Baa1, BBB+ and A, from Moody’s, S&P and Fitch, respectively.
