Moody's: Global green bond issuance robust in first quarter; second largest quarterly volume ever

Global green bond first quarter 2017 volume increased strongly compared to the corresponding period a year ago after France (Aa2 stable) tapped the market with a EUR 7 billion ($7.5 billion) offering in January, Moody's Investors Service says in a new report. The country's green bond was the largest to date and bodes well for additional sovereign issuance.

"Green bond issuance remained healthy in the first quarter of 2017, reaching $29.5 billion, up 75% from the first quarter of 2016," according to Henry Shilling, the author of the report and a Moody's Senior Vice President. "Volume in the first quarter was the second largest ever for a quarter, trailing only the $30.2 billion in the fourth quarter of 2016."

 

The report "Green Bonds -- Global: France's Sovereign Offering Propels Strong First-Quarter 2017 Issuance," says if the current trend continues, green bond issuance will total nearly $120 billion for the year and eclipse the record of $93.4 billion in 2016.

Renewable energy and energy efficiency projects were in the fore during the period to comprise the bulk of project types with the two accounting for 42% of total dollar issuance. As well, clean transportation was the third most popular category.

French issuers dominated the mix during the first quarter with roughly 40%, or $118 billion in deals. Likewise, corporate and investment grade issuers were prominent in the period, although financial institutions declined significantly with $5.4 billion in deals, or 18% of global volume.

"The drop in financial institution issuance is primarily due to the significantly lower level of green bond issuance from Chinese banks. On the flip side, municipal issuers accounted for $5.1 billion of issuance in the first quarter, or 17%, up slightly from 12% for 2016," Shilling says. Issuance by Chinese entities fell 67% to $2.6 billion compared to Q1 2016.

During the first quarter, the average transaction size increased to $360 million on the basis of 82 transactions while the percentage of Aaa-rated transactions, based on Moody's ratings, continued to drop, reaching 14% from 25% share for all of 2016.

The report goes on to note that the green bond market is continuing to evolve. The number of sovereign issuers will likely increase, momentum from the Paris Agreement will expand the market's geographic reach and new security structures will continue to emerge.

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