The green bond market is relatively new, having taken off in just 2014 with $36.6 bn issued. The number of issued Green Bonds had actually tripled since its introduction in 2013, when $11 bn had been issued.
What Are Green Bonds?
Before we go any further, let’s stop and discuss the concept of Green bonds. What are they? Why are they so important? There is a good chance that you’ve heard the term ‘Green’ at some point in the past, and if so, then you know it refers to environmental products and efforts. For example, green housing efforts are constantly underway along with innovations to make the car industry more energy efficient. All of these projects need to be funded somehow, and according to Divya Bhaskar share market news, green bonds are covering a portion of the cost in India.
Addressing Environmental Solutions
The creation of green bonds came about as a way to fund projects that have positive environmental benefits. These projects may also have some sort of benefit for the climate, and most are issued as ‘use of proceeds’ or asset-linked bonds. Essentially they are earmarked for green projects and cannot be detoured to any other type of project. It is important to note that the bank’s full support is behind these bonds, and Kishor Kharat, managing director & chief of IDBI bank has confirmed more than one billion dollars in clean energy products in their personal pipelines. He is on record as having said:
“We have got huge oversubscription, more than $1.10 billion. We have a pipeline of more than $1 billion clean energy projects requiring credit lines. In futures, we may sell more such bonds depending on those project status.”
It is known that the lender was forced to decline the oversubscription which sat in excess of $350 million, involving 60-70 different investors.
Green Bond Pricing
Initially bonds were priced at 4.26% after an added markup of 255 basis points on five-year US treasury. This number now sits at 1.71%. IDBI has converted the securities however to the floating rate, meaning they are now offered at 3.22%. The green bonds will be given a five year maturity, and they have already lent $300 million to green projects. Additionally, they are in talks with a number of other potential borrowers with the intention of lending $2 billion during the next year.
This is not the first time that a bank has made this move recently. Headway Solar discussed Yes Bank who sold green bonds, though the offer was dictated by European currency. The next generation of green bonds will be handled in Indian denominations, making them simpler to obtain and use within the country.
While it has no real bearing on the situation, this move comes at a time when many analysts are stating that now might be a good time to sell IDBI stock due to the potential for market declines. Still, the future is difficult to see, and green bonds are definitely in.