OP green bond debut ‘ticks all the boxes’

Finland’s OP Financial Group achieved a strong outcome for its debut green bond on Tuesday, a EUR500m five year senior preferred deal that attracted over EUR2.1bn of demand and paid no new issue premium, with its green nature seen boosting an offering that already had several factors working in its favour.

The green bond is the first launched by a Finnish bank, although Nordea issued a green bond before moving its headquarters from Sweden to Finland.

OP has six categories of eligible assets in its green bond framework, but only three of these categories constituted the EUR967.3m of designated eligible assets ahead of the inaugural issue: renewable energy (68%), green buildings (17%), and sustainable forestry (15%).

The group published its green bond framework in October and then in November held a roadshow with Crédit Agricole to introduce the programme to investors. It then entered the market on Tuesday with its debut.

Tom Alanen, senior funding manager at OP, told Sustainabonds the deal went even better than expected.

“We opened the books and two and a half hours later we had EUR2.1bn of orders,” he said. “It’s not every day that this happens.

“The depth of demand enabled us to price the bond 15bp inside the initial price thoughts with basically no new issue premium at all. It was a very successful deal.”

Leads Crédit Agricole, HSBC and OP went out with initial price thoughts (IPTs) of the 50bp over mid-swaps area for OP Corporate Bank’s EUR500m no-grow five year senior preferred trade on Tuesday morning. After around an hour the leads indicated that orders were over EUR1bn and after another hour revised price guidance to the mid-swaps plus 37bp area, plus or minus 2bp, will price in range, with books above EUR1.7bn. The deal was then priced at 35bp over on the back of more than EUR2.1bn of demand, pre-reconciliation.

“From the outset, this is the kind of trade that ticks all the boxes,” said André Bonnal on Crédit Agricole’s syndicate desk. “It’s a EUR500m no-grow, inaugural green, five year, double-A rated senior preferred. And from a very sound issuer and safe haven region.

“When you add all of that to a market that is quite strong, especially on the credit side, you have a transaction that is outstanding.”

He said the IPTs of the 50bp area might with hindsight be deemed overly conservative, but noted that spreads have rallied strongly and it was unclear how investors would react to a new issue at the tighter levels. Ultimately only a handful of investors dropped out when pricing was tightened to 35bp, he added.

OP was able to price the new issue roughly flat to its outstanding issuance, and Bonnal said the green nature of the deal was key to this, which was a better outcome than had been achieved by comparable trades.

Alanen said the pricing was tighter than what might have been achieved had OP entered the market at the end of last year after its November roadshow, which it decided not to do given poor market conditions. OP announced its latest results earlier this month and proceeded with launch after completing an update to its debt issuance programme on Friday.

“We are very happy with the transaction,” he said, “which showed investors are very comfortable with our framework. The investor base was very good quality, with official institutions and central banks allocated 26%, for example.”

Fund managers took 41% of the issue, insurance companies and pension funds 21%, and banks 12%. Nordic accounts were allocated 24%, the Benelux 24%, Germany and Austria 23%, France 15%, the UK and Ireland 8%, and others 6%.

Alanen said the likely timing of the issuer’s next green bond is not yet decided. The issuer will firstly focus on preparing its first green bond impact report.

OP Financial Group is the biggest mortgage lender in Finland and Alanen noted that it is actively following the Energy Efficient Mortgages Initiative. He said the development of this project could influence whether OP extends its green bond issuance at some point to covered bonds via OP Mortgage Bank.

Berlin Hyp