The State of Hesse on Tuesday printed the largest green bond from a European region, a €1.5bn 10 year that attracted over €6bn of orders and more accounts than on any previous Hessian issue, with the level of demand and greenium of at least 1bp seen as testament to its credentials and efforts.
The new green bond, Hesse’s third, eclipses the record for the largest Länder green bond that it previously set, in 2023, with a €1bn issue.
Hesse had announced its issuance plans on 23 May and an end of roadshow announcement last Friday (6 June) flagged a focus on the 10 year maturity, with launch set for this Tuesday, subject to market conditions.
On Tuesday morning, leads Crédit Agricole, Danske, DekaBank, Deutsche, ING and LBBW opened books with guidance of the mid-swaps plus 43bp area for a euro benchmark-sized June 2035 transaction, expected ratings AA+/AAA (S&P/Scope). After a little over an hour, they reported books above €3.5bn, excluding joint lead manager interest, and after an hour and 40 minutes, the spread was set at 40bp and the size at the maximum €1.5bn possible on the back of over €5bn of orders. The final book reached more than €6bn, excluding JLM interest, with over 150 investors allocated.
“The State of Hesse has achieved a remarkable result with its €1.5bn green bond issuance, setting a new record not only as the largest ever green bond by a German Länder but also from any European region,” said Lars Mac Key, head of sustainable products at Danske. “This accomplishment reinforces Hesse’s leading position as the foremost issuer of green bonds among the German Länder.”
The order book is the second largest for any Hesse bond, behind a €8.7bn book for a €2.5bn seven year transaction in January, while the number of participating investors, over 150, is a record for any bond new issue from the state, as was a 63% share of distribution outside Germany.
“We were astounded that the order book filled up so well in the first hour,” Alexander Labermeier, head of treasury, Hessian Ministry of Finance (pictured), told Sustainabonds. “After the book reached €5bn, we made a brave move to directly fix the spread and size: the maximum size was already set at €1.5bn, so we took the decision to tighten 3bp, which was the maximum we would consider.
“We still ended up with an order book above €6bn, so the strategy really paid off.”
The new issue brought in accounts new to Hesse, while ESG-focused investors had a share of more than 70% of the paper. Banks were allocated 32%, asset managers 29%, central banks and official institutions 28%, and insurance companies 11%. Germany took 37%, Asia 17%, the Benelux 14%, the Nordics 12%, southern Europe 11%, France 4%, Austria and Switzerland 3%, and others 2%.
“The granularity of the order book and its quality was top tier, in the sense of leading green bond issuers such as KfW or EIB,” said Patrick Seifert, head of primary markets and global syndicate, LBBW. “Hesse’s success is testament to how they have set up their green bond issuance and gained investor acceptance for it.”
The pricing was meanwhile deemed to have reflected a greenium of at least 1bp, with conventional March 2035 Hesse paper seen at around 40.5bp and a hypothetical new conventional issue of a similar size to the new green bond potentially coming at 41bp or wider.
“The existence and extent of a greenium has always been a widely discussed topic,” said Lea-Marie Reich, SSA syndicate at LBBW. “But on this trade, it’s hard to argue that there was no greenium.
“Overall, this really was an example of how much difference green can make – we’ve seen books from Hesse for large trades in similar maturities that did not achieve this level of demand and hence achieve the kind of stability in the book that would warrant a 3bp move.”
The deal also performed in the secondary market, trading at around 37.5bp on Wednesday.
As further factors in the deal’s success, the leads and issuer cited the relative stability of the market since the mandate announcement, as well as a positive backdrop in SSA spreads, while the 10 year maturity anticipated has also proven a sweet spot.
“The stars aligned,” added Reich, “and made all the hard work that the Hesse team put in really worthwhile.”
Labermeier agreed that the issuer had benefited from fortunate tailwinds in the new issue, and additionally cited the green credentials of the issuance and the efforts the state has put into highlighting these across its three issues.
“For a few years now, we have been promoting Hesse throughout Europe, and in the condensed marketing for this particular issue we had 24 individual calls alongside global investor calls, and in our book we saw many of the people we encountered in these meetings.
“We offer a clear product: it’s pure green, which is not something so many of our peers offer,” he added. “And whereas green issuers typically might include refurbishments or photovoltaic cells, we include categories such as biodiversity, which meets investors’ interest.”
Eligible green expenditures include clean transportation, forest sustainability and energy efficiency, among others. The framework includes 31 projects and contributes to seven UN SDGs. (See earlier article here for more information and background on the new issue.)
Labermeier also contrasted coming at the end of a series of green, social and sustainable Länder issuance with its previous green bond, and its latest, which he said benefited from first-mover advantage.
“Sometimes being first helps; sometimes not,” he said. “Here, it definitely helped with the spread tightening process.
“So this time we are perhaps a door opener and may help the next issuers with sustainable bonds.”
Photos: Kellerwald-Edersee National Park, Hesse – Wikimedia Commons; Alexander Labermeier – Alexander Hoffmann-Glassneck
