The Australian government’s plan to establish a green bond Medium Term Note (MTN) program next year will be a fillip for the country’s energy transition credentials and is likely to attract a deep pool of investor capital.
“This is an important development for the Australian ESG market with the news that the Federal Government will be an active ESG market participant,” TCorp’s head of funding & sustainability Daniel Chandler tells Investment Magazine.
“It gives an additional layer of credibility and gravitas to the Australian market that will attract more eyes on this market and sends the right signals offshore about what’s happening in Australia more broadly,” he says.
The Minister for Financial Services Stephen Jones announced in May the government planned to issue a debut green bond in the middle of 2024. The size of the green bond program will be significant as Australia’s asset pool is well north of $10 billion according to industry sources. The Albanese government has ambitious renewables target and energy transition plans to decarbonise the economy and move away from the heavy reliance on fossil fuels.
The Australian Office for Financial Management will conduct a beauty parade to appoint a financial advisor and sustainability co-ordinator to assist them to establish the green bond framework and debt program according to the sources. This was New Zealand’s experience when it launched its green bond program in September 2022.
There have been 13 sovereign green bonds issued this year totalling US$44.4 billion ($64.2 billion) this year from eight countries according to data from Refinitiv. The issuers are Italy (US$13 billion), Hong Kong (US$11.8 billion), Germany (US$7.3 billion), Ireland (US$3.6 billion), Austria (US$3.3 billion), Turkey (US$2.5 billion), Israel (US$1.9 billion) and Belgium (US$895.9 million) according to the data.
The lead managers will be seeking to maximise liquidity and diversify the investor base explained one of the sources. “They are likely to syndicate the bond widely to both domestic and international investors in Asia, Europe and the US,” he said.
Strong demand expected
Investor demand for the debut bond is likely to be strong, judging from the market reception to Western Australia’s first green bond in mid-June that raised $1.9 billion. The order book was heavily oversubscribed, hitting over $6 billion from more than 60 investors.
“ESG bonds [are] a very structurally under supplied part of the market,” Chandler says. “There are a lot of investors these days administering portfolios that can only invest in ESG more broadly.”