SSA SNAPSHOT: KfW gives go-ahead for new long 5yr green

The number of deals in the SSA market may be much reduced on Wednesday but what is live comes from two of the heavyweights of the sector. Firstly, in euros, German stalwart KfW is bringing a new long 5yr green bond. That will be the second green benchmark from the issuer this year coming after a EUR4bn short 8yr that was placed at the very end of April. It is perhaps important to recall at this juncture that despite the recent KfW funding programme reduction to EUR80bn (from EUR90-95bn), the expected portion to come from green bonds remains steady at EUR10-13bn for 2024 overall. In dollars, and carrying on a week that has already seen an uptick in supranational issuance, is the Asian Development Bank (ADB). It is looking at a 5yr fixed deal providing some variation away from the 2yr and 10yr transactions that have already surfaced from the World Bank (IBRD).

The relatively quieter session (if that is even possible with KfW in the market) comes on the back of a busy Tuesday that saw the sector go through the gears. The Republic of Finland didn't disappoint on the headline front as its third EUR line of the year was sized at EUR4bn after orders reached a robust EUR10.3bn. That is a far cry from the EUR23bn that lined up for its last EUR deal (a 10yr) in Apr, but pricing was a touch more aggressive as, at m/s+10, it was more in line with fair value. Away from that BNG Bank priced a EUR1.5bn 10yr social bond into EUR1.8bn of orders leaving a 3bp NIC on the table.

The World Bank went with a multi-tranche and multi-currency (all sustainability) approach with the euro element taking a 7yr tenor. It was sized at EUR2.5bn with orders mounting up to a peak of EUR3.9bn. Its other tranches came in dollars as it brought 2yr and 10yr tenors to market with a distinct preference from investors for the shorter deal. Demand peaked there at USD14.5bn representing the largest order book ever for a single tranche from the issuer although a still respectable USD7bn was tallied up against the 10yr. Despite the fervour surrounding the short IBRD USD deal it was the European Investment Bank that recorded the largest order book of the day as its USD5bn 5yr witnessed orders outstripping the USD25bn mark and coming 'close' to its own issuer record (USD28bn recorded in Jan 2024 via another 5yr). In contrast the Development Bank of Japan went almost under the radar, quietly building a USD1.25bn order book for a 2.08x cover of its USD600m 3yr deal. Final pricing was 3bp inside IPTs leaving very little in the way of a concession over the issuer's growing USD curve.

Live deals

The KfW deal may be the second EUR green of the year from the issuer but we should also recall that it has been active in the green bond space in the AUD, CNY and NOK markets already this year. In addition, KfW also completed a benchmark transaction in dollars with a green label in February pricing a USD2bn deal with a 10yr tenor into a very healthy order book of USD12.1bn (or a 6.05x cover). All told, before today's transaction, YTD green issuance from KfW stands at approximately EUR7.13bn (at current fx rates), or just over 60% of the stated EUR10-13bn target (using the mid-point). Today's IPT of m/s+4a for the long 5yr maturity appeared to be offering a modest 3bp NIC which is easily arrived at with the presence of an existing green line with a Nov 2029 maturity which is quoted at i+1bp (bid) on screens this morning. With orders above EUR5.7bn the final spread is being set at m/s+3 and it is looking increasingly unlikely that today's deal will achieve a standout cover ratio as some green bonds have done in recent years (see chart below).

New Mandate / RfP

** EFSF, the European Financial Stability Facility, rated Aaa (Moody’s) / AA- (Fitch) / AA- (S&P), has sent a Request for Proposal to a selection of banks from the EFSF/ESM Market Group with regards to an upcoming transaction, subject to market conditions.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.