SMFG reaps pricing rewards of first green euro HoldCo

Sumitomo Mitsui Financial Group (SMFG) sold the first green HoldCo transaction in euros on Wednesday, a EUR500m seven year fixed rate trade that attracted over EUR1.6bn of demand, pre-reconciliation, to achieve tight pricing, while Japanese peer Mizuho is due with a senior trade after a roadshow ending today (Friday).

SMFG’s senior unsecured HoldCo deal follows a $500m green bond for operating company (OpCo) Sumitomo Mitsui Banking Corporation (SMBC) in October 2015, a deal that was the first green bond from a Japanese private financial institution.

According to a Sustainalytics second party opinion, the proceeds of the new green bond for the holding company (HoldCo) will be used to finance and refinance expenditures related to renewable energy, energy efficiency, green buildings, clean transportation, and pollution prevention and control. SMBC will allocate lending to eligible green projects. SMFG’s framework is in line with the Green Bond Principles and also follows Green Bond Guidelines issued by the Japanese Ministry of the Environment in March.

Bookrunners Bank of America Merrill Lynch, which was also green structuring agent, Crédit Agricole CIB and SMBC Nikko went out with initial price thoughts (IPTs) of 55bp-60bp over mid-swaps for the EUR500m (¥66bn) no-grow issue on Wednesday morning, then moved to guidance of the 45bp area with books above EUR1.4bn. The spread was then set at 41bp over and the deal priced on the back of more than EUR1.6bn of demand. The deal tightened in the aftermarket and was bid at 39bp over going into yesterday’s (Thursday’s) close.

A syndicate banker at one of the leads said the deal paid nil to 1bp of new issue premium, based on fair value of around 40bp over mid-swaps derived from SMFG’s curve and a September 2024 MUFG HoldCo issue bid at 43bp over, with the two issuers usually trading roughly flat to one another in the euro and US dollar markets.

He further noted that as well as coming inside the Japanese peer’s curve, SMFG’s green bond enjoyed greater momentum during execution than a EUR500m no-grow senior non-preferred issue for France’s La Banque Postale the same day that experienced only 12bp of tightening from IPTs to re-offer, and attracted a modest EUR1.1bn of orders versus SMFG’s EUR1.6bn-plus book.

“Even if it is difficult to quantify, the green element added some benefit in terms of pricing,” he said.

“For example, we would have had more limited price tension had it not been green.”

Around half the bonds were allocated to green investors, according to the lead banker, who said the books was very well balanced and diversified across European regions but also Asia, and included “top notch” accounts.

Upon announcing the mandate, SMFG had flagged that the deal would be from five to 10 years and in fixed and/or floating rate format. The seven year fixed rated trade ultimately launched follows a EUR1.25bn dual-tranche transaction in June that was split into EUR750m five year floating rate and EUR500m 10 year fixed rate tranches.

“On the back of feedback from investors and taking into account current supply and market conditions, it was clear that seven year fixed would be the right follow-up trade,” said the lead banker, “i.e. not to come back again with a floater, and more importantly to extend the curve in euro format, going either for seven or 10 years.

“And when it comes to granularity and liquidity in primary, seven years tends to be the best possible compromise, particularly when it comes to a name that is not so common.”

Expected credit ratings for the issue are A1/A- from Moody’s/S&P.

In a roadshow presentation, SMFG said that among the reasons for issuing the green bond are to support the Sustainable Development Goals, to lead the green finance market, and to meet its stakeholder needs.

For renewables, SMFG will report estimated CO2 emission equivalent avoided, in conjunction with support from the Japan Research Institute (JRI), which is also involved in setting eligibility criteria and the selection process as an advisor. The proceeds of SMBC’s green bond were allocated to renewable energy projects.

“We believe SMBC’s backing of renewable energy projects plays an important role in helping to curb CO2 emissions and accordingly decreased environmental impacts,” it said.

Mizuho Financial Group held a roadshow for its green bond from Monday to today. Mizuho Securities and Bank of America Merrill Lynch structured the green bond, and are joined as leads by Barclays, BNP Paribas and Natixis.

Mizuho also flagged a deal in the five to 10 year maturity range and fixed and floating rate transactions are possible when announcing the roadshow.

ABN AMRO