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UK's second 'green' gilt draws over $100 billion in demand

By Reuters

By David Milliken

LONDON -Britain received 74.1 billion pounds ($102.4 billion) of investor demand on Thursday when it issued its second ‘green’ government bond, a month after its first green gilt drew a record 100 billion pounds in orders from investors.

Institutional investors’ appetite for so-called green bonds – the proceeds of which are ring-fenced for environmentally friendly projects such as offshore wind farms – has surged over the past couple of years.

Britain is a relative late-comer to the market compared with other European governments, having feared investors would require a higher interest rate to compensate for a potentially less liquid type of bond.

However, Britain’s first sale of a 12-year green bond last month drew record demand and Thursday’s sale creates the longest-dated sovereign green bond in issue, maturing in 2053.

“The demand for our Green Gilt in the run-up to COP26 shows that investors are keen to help in the collective fight against climate change, and the important role that private finance plays in that endeavour,” finance minister Rishi Sunak said.

Proceeds from the sale make up only a small part of the 253 billion pounds of debt issuance Britain plans this financial year, but help the government burnish its green credentials before the U.N. climate conference in Glasgow in two weeks.

Britain sold 6 billion pounds of the new July 2053 gilt, and the 10 billion pounds of the July 2033 green gilt was the largest ever sovereign issue of a green bond.

The European Union, a supranational issuer, raised 12 billion euros ($14.0 billion) with its first green bond this month and received 135 billion euros in orders.

The new 2053 gilt has a yield of 1.4133%, which is 1 basis point less than the benchmark July 2052 conventional gilt, and at the top end of initial price guidance.

British government bond syndications are typically heavily oversubscribed, with investors usually only expecting to receive a fraction of the bonds they order.

Syndications are used to sell a larger sum of gilts than is possible at a single auction, and they typically focus on new issues or gilts with a narrower investor base, such as long-dated inflation-linked bonds.

Green bonds appeal to funds dedicated to buying green assets, and also to investors who are concerned that regulators and other stakeholders will in future look more closely at portfolios’ overall environmental impact.

Domestic investors bought 88% of the bond sold – a lower percentage than at a standard syndication, showing the bonds had a broader international appeal than other gilts.

Bank of America, Morgan Stanley, NatWest Markets, RBC and Santander acted as joint bookrunners on the transaction.

($1 = 0.8591 euros)

($1 = 0.7237 pounds)