GREEN BONDS

GREEN BONDS
Global
economy is significantly obstructed by three major challenges: climate change,
energy constraints and financial crisis. To overcome these challenges strong
governments coherent policies and good framework conditions is desirable.  To triumph sustainable growth, finance sector
plays an imperative role.  An innovative
financial solution Green finance encompasses investment in ecologically defensible
products and projects. One of the major sources of green finance is green bond.
Green bond is a fixed income financial instrument for raising capital through
the debt market like corporate bonds. 
The key metamorphosis in green bonds is raising finance for
environmental benefits, such as renewable energy, low carbon transport or
climate adaptation.  

Let us understand what,
who and how of Green Bonds works?
State
and national government, municipals, export-import banks, inter government
organizations such as the world bank or regional development banks, financial
institutions and other corporations can issue green bonds.  
Typically,
Green Bonds are allotted for the period of 18 months to 30 years. Issued by
governments, inter government organizations, financial institutions and other
corporations. Institutional investors, specialists environmental, social,
governance investors, responsible investors, corporate treasury and retail
investors are the foremost partakers in bond market. Differentiated Green Bonds
available in market: High yield Green bonds, Corporate Green Bonds, Municipal
Green Bonds, Commercial bank Green Bonds, Labelled Green covered bonds and
Asset backed securities are the key categories of Green Bonds available in the
market. Green bonds can be dispensed for the purpose of: Renewable energy,
Energy efficiency, sustainable waste management, sustainable land use,
biodiversity conservation, clean transportation, sustainable water management
and climate change adaptation.
Green
Bonds are issued for the purpose of green financing projects only.  SEBI (Issue and Listing of Debt Securities)
regulation, 2008 governs public issue of debt securities and listing of debt
securities issued through public issue or on private placement basis, on a
recognized stock exchange. Every issuer of Green Bonds is governed by ILDS-
issue and listing of debt securities in terms of disclosure, management of
proceeds, reporting requirements etc. SEBI controls the process requirements to
ensure the fund/investors will no longer need to test for eligibility and
quicker decision making. Every issuer has to fulfil net worth prerequisite,
rating considerations and track record before proceeding for issue of Green
Bond.

Why Green Bonds are
important for issuer?
Ø  Positive public
relations:
it benefits in augmenting an issuer
reputation, as it demonstrates green credentials and displays commitment
towards sustainability.
Ø  Investor
diversification
: it provides issuer the access to
green venture investors who focus primarily on Environmental, social and governance
related aspects of projects.
Ø  Potential for pricing
advantage:
as it attracts special investors,
issuer benefits through better pricing.

Issuance of Green Bond
by Indian Entities:
Sl
No.
Name
of the issuer
Issue
date
Issue
size
Purpose
Other
information
1.
YES Bank
February 2015 and August 2015
Rs. 1000 crores and Rs. 350 Crores
Renewable energy projects such as
solar, wind and biomass projects
Maturity: 10 years
Oversubscribed two times
2.
CLP India- first Indian corporate (non-bank)
September 2015
Rs. 6 billion
Capital expenditures  refinancing of wind asset
Maturity: 5, 6, 7 years
Coupon: 9.15% pa.
Primarily attracted Mutual fund
investors
3.
EXIM bank
March 2015
$ 500 million  dollar denominated bond
The issue proceeds are directed toward
funding eligible green projects in Bangladesh
and Sri
Lanka
Maturity: 10 years
Price: 147.5 BPS over US T bonds.
Coupon: 2.75%
Oversubscribed 3 times and subscribed
by asset managers, banks and sovereign wealth funds and insurance companies
4.
ReNew Power Ventures
September 2015
Rs. 4.51 billion
Refinance bank loans for the company’s
85 megawatts (MW) wind power plant in Maharashtra.
Maturity: 17.5 years
Institutional investors to support
renewable infrastructure projects.
5.
Hero Futures Energies
February 2016
Rs. 3 billion
Climate bond NCD
Finance         the development of wind energy projects
in the states of Madhya Pradesh, Telangana, and Andhra Pradesh
Maturity: 10 year
Climate change institutional investors.
6.
IDBI bank- first public sector bank
November 2015
$ 350 million
Financing renewable energy projects
Maturity: 5 years.
Price: 255 bps over US treasury
Oversubscribed 3 times.
82% from Asia and 18% Europe
7.
IREDA- Indian renewable energy
development agency.
Tax free bond
January 2016
Rs. 10 million
Renewable energy projects across India
Maturity: 10-20 years Oversubscribed 5
times.
Retail investor -7.68%
HNI and Institutional buyers
Conclusion: Green
Bond is one of the major sources of green financing to achieve sustainability in
environmental benefits, such as renewable energy, low carbon transport or
climate adaptation. Green Bonds are typically issued for the period of 18
months to 20 years by government, inter government, financial institutions and
other corporates. YES bank, CLP, Hero Future energies, IDBI and IREDA are some
of the major issuer of Green Bond floated in India as well as international
market for development of renewable energy, wind energy and climatic adaptation
projects.  There is significant market
potential for Green Bond in India in coming years.
<NRDC report
“Greening India’s Financial Market: How Green Bonds Can Drive Clean Energy
Deployment”, April 2016>
<SEBI report “Disclosure requirements for Issuance and
listing Green Bonds”>
<Economic times articles>

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