Westpac sold its first offshore Climate Bond yesterday (Thursday), a EUR500m seven year senior unsecured deal, and its green status was deemed to have aided pricing in a weaker market and versus recent comparable Australian supply.
Westpac Banking Corporation issued the first bond off what it dubs its Climate Bond programme in its domestic Australian market in May 2016, and yesterday’s deal was its first in euros and internationally.
Lead managers Bank of America Merrill Lynch, BNP Paribas, Crédit Agricole and Westpac launched the EUR500m no-grow seven year deal yesterday morning with initial price thoughts of the 35bp over mid-swaps area, then set guidance at the 30bp are on the back of some EUR1bn of demand. They were then able to set final pricing at 27bp over on the back of a final EUR1.25bn book.
A syndicate banker at one of the leads put the new issue premium at just 2bp, which he deemed a good result given a weak market backdrop.
“This week senior has been trading wider, and overall market sentiment has been in the red as well,” he said. “That explains why you didn’t see so much senior or AT1 or Tier 2, and a lot more in covered bonds.”
He based the 2bp new issue premium on fair value of the 25bp area, based on Westpac March 2023s being bid at 21bp and its April 2027s and September 2027s at around 20bp. He noted that although this implied a flattish or inverted curve, when Westpac printed long five and 10 year trades in late August there was a 10bp differential between the two, and hence the curve from five to seven years was worth 4bp-5bp.
The pricing was 3bp inside a National Australia Bank seven year deal launched in mid-September that had proven weak in the primary and secondary markets, and was itself trading wider than the rest of NAB’s curve, and the syndicate banker said that Westpac’s green status and EUR500m no-grow size helped achieve this.
“Clearly it was a difficult reference to avoid when talking to investors,” he said. “But those two elements strongly helped to get a tighter print here”.