The European public sector market took an ESG flavour on Monday, with Japan Finance Organisation for Municipalities and Cassa Depositi di Prestiti both teeing up deals in the single currency.
The Japanese agency, which last month mandated JP Morgan and Mizuho (co-green structuring agents), Barclays and Bank of America for a debut green bond in either euros or US dollars, settled on the former after its roadshow.
"I would imagine the reception they got from the euro investor base was more positive, which is why they went that way," a banker away said, adding that he thought the trade would go very well.
"It's a rare but liked name, which should generate plenty of interest, and if you are an investor you get a pretty good pick-up compared to other names."
The €500m no-grow, which is being marketed at IPTs of 30bp area over mid-swaps, will be JFM's first euro in more than five years. It is coming almost 38bp wider than where a €3bn seven-year priced last month for the World Bank was quoted.
"Although most of our benchmark transactions have been US dollar-denominated so far, we have selected the currency, whether US dollar or euros, that is deemed optimal by comparing costs and investor demand. For these reasons, we are considering a euro-denominated debt offering as an option for our coming green bonds issuance," Ueda Hirotsugu, director, finance department, at the issuer told IFR ahead of the beginning of the roadshow.
JFM is following in the footsteps of the Development Bank of Japan, which has paved the way for Japanese SRI debt issuance in recent years.
DBJ last raised a sustainability issue in September, a US$1bn October 2024 trade. It printed euros in October 2018, a €700m 0.875% October 2025 that was bid at 20.7bp over swaps. DBJ has a much older 2027 bond that was quoted at 23bp over.
"I would use DBJ as a proxy and I would say they should be three or four back from DBJ," another banker away said.
"If they land mid to high 20s, I would say that is a very reasonably priced trade."
Non-European names have fared well in the single currency since the start of 2020. The World Bank, for example, lured over €4.25bn of demand for its transaction.
Closer to home, CDP is preparing a 10-year social housing bond via Banca IMI, Credit Agricole, HSBC, Mediobanca, UBI and UniCredit.
"Markets are very good for Italian credits right now; investors are looking for those names that offer a bit more spread," the first banker said.
"CDP updated their ESG framework to included social housing, so of course they want to issue to acknowledge that and it goes quite nicely with the broadening out of the scope of ESG."
CDP sold a €750m social bond at 195bp over swaps last year that was quoted over 100bp tighter. The latest bonds are expected to be rated BBB/BBB/BBB+ by S&P/Fitch/Scope.
PIPELINE BUILDS
Away from JFM and CDP, conventional supply will be dominated by the Republic of Finland and German Laender. nL8N2A34M2nL8N2A3467
The sovereign has mandated BofA, Citigroup, Danske Bank, JP Morgan and Nordea for an April 15 2036 transaction.
"It's not surprising it is coming now, given all the other sovereigns," the second banker said.
"I would say the 15-year tenor is interesting. There has not been much 15-year supply, so from that angle its good, but the curve is very flat. We have actually been seeing some push-back from investors when it comes to 15-year paper saying the pick-up just is not there."
Still, sovereign issuance has been flying off the shelves. Austria, for example, attracted a record €30bn-plus of orders for its first benchmark of 2020 despite being the first negative-yielding 10-year sovereign syndication.
That is not to say that euros will be the only game in town. As expected, US dollars issuance is picking up. nL8N29Z6IV
The European Investment Bank has mandated HSBC, Morgan Stanley and RBC for a US$3bn no-grow that is being marketed at 8bp area over mid-swaps, while the Province of Quebec has announced a five-year at plus 21bp area. BMO, BofA, JP Morgan and Scotiabank are joint leads.