Justin Long of TCV, left, with fellow panellists Rob White of NAB and Katharine Tapley of ANZ.

General manager of Treasury Corporation of Victoria Justin Long was in Sydney on Tuesday drumming up interest from investors on a green bond issuance that will make the market sit up and take even more notice of this growing sector.

  • Last week, on Monday, he had featured on a panel to launch the latest report from the Climate Bonds Institute compiled by HSBC in an event headlined by Sean Kidney, Climate Bonds Initiative chief.

Long’s plan is to catch the growing wave of interest in green finance that’s emerging around the world and slowly starting to take hold in Australia.

For now the TCV can claim this will be the first government green bond in Australia.

Bridget Boulle, head of market analysis at Climate Bonds Initiative

At Monday’s event at Norton Rose offices, Long’s fellow panelists and guest speakers included a strong line up: Mark Burrows, managing director of Credit Suisse; Emma Herd, chief executive of the Investor Group on Climate Change; Katharine Tapley, who will take over Catherine Bremner’s role as head of sustainable finance solutions at ANZ when Bremner leaves for a UK government and climate role in the UK; and Rob White of NAB, which will handle TCV’s issuance.

As Catherine Bremner, the soon to be former  head of sustainable finance solutions for ANZ, said as we caught up with her this week after the event, this is an industry on the boil.

The TCV offering will mark the seventh such transaction in Kanga bonds as they are known.

Aussie green bonds are just $2.35 billion, a mere 1.5 per cent of “all outstanding green bonds” but, according to Reuters, the market is on the move.

It pointed to consumer-finance specialist FlexiGroup in April printing Australia’s first green securitisation to show that some investors were willing to pay a premium for exposure to environmentally responsible assets.

“FlexiGroup’s ABS included $50 million of A2G notes backed against loans for residential rooftop solar power systems. This tranche priced five basis points inside an identical portion secured against non-green assets – something few other issues have managed globally,” Reuters said.

Chief execuctive Symon Brewis-Weston said at the time, “We are very excited by the innovation shown in this latest transaction. Solar funding has represented a significant portion of the Certegy business for several years and is one of our strongest industries. In offering the Class A2-G note, FlexiGroup has given new and existing investors the opportunity to directly support environmentally sustainable industries”.

The transaction was arranged by National Australia Bank and joint lead managed by the Commonwealth Bank of Australia and National Australia Bank.

From left: Ross Barry, First State Super;
Richard Lovell, Clean Energy Finance Corporation;
James Person, QBE Insurance Group

FlexiGroup’s chief risk officer Ross Horsburgh and group treasurer June McFadyen told The Fifth Estate in May that the company saw little risk that the appetite for green products would fall away.

Horsburgh said the most pleasing thing for him was that the interest for the securities came not just from ethical investment funds but from general super funds.

“This is not a product designed just for a particular ethical groups.”

“Obviously there is a plethora of investors out there,” both agreed.

From consumers, said Horsburgh, “What we’ve seen in the last few years is that demand has been maintained despite that government subsidies have been removed.”

Flexigroup has since been hammered by the market but unfairly according to investor publication MotleyFool, which suggested on Friday the stock might even make a good buying opportunity.

“FlexiGroup shares have been hit hard by market bearishness about the consumer leasing and credit segments. Additionally, FlexiGroup’s earnings this year will be impacted by write-downs and closure of non-core businesses that deliver lower returns than its core segments. However, cash profits remain unaffected (and actually grew), which will comfortably cover the 9.3 per cent dividend,” the publication said.

“With the dividend payout costing only around half the company’s cash earnings, FlexiGroup appears in a solid financial position and could prove a bargain even if its business does little more than stagnate.”

Reuters suggested a “good cause” premium, whereby green investors accept lower yields over conventional bonds, could trigger a run of senior unsecured supply from issuers that might otherwise baulk at the higher documentation costs.

On the overall outlook for climate and green bonds, Kidney was strongly upbeat. The urgency of climate change was converging spectacularly with funds looking for a home at more than zero interest or in the case of Japanese bonds negative interest rates.

  • See our article on Sean Kidney’s presentation here

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