A EUR1.5bn green debut for DNB Boligkreditt on Tuesday illustrated the growth of the green market this year, being the biggest green bond from a European bank and attracting over EUR2bn of orders, of which EUR1.2bn was related to green accounts, according to DNB’s Thor Tellefsen.

“We think it was a great success in all ways,” Tellefsen, head of long term funding at DNB, told The CBR. “The size was good, we had more than 100 investors in the book with very good coverage from green investors, the new issue premium wasn’t too high, and it has performed on the secondary market – so everyone is happy.”

Leads Crédit Agricole, DNB, ING, LBBW and UniCredit launched the seven year issue with guidance of the mid-swaps plus 5bp area on Tuesday morning. After around 50 minutes, the leads announced that books had surpassed EUR1bn. The spread was subsequently set at 2bp with books over EUR1.8bn, excluding joint lead manager interest, before the size was set at EUR1.5bn (NOK14.2bn) with books above EUR2bn at re-offer, including EUR40m JLM interest, with over 100 accounts participating.

The EUR1.5bn size makes it the largest green bond from a European bank and the largest euro-denominated green bond from any bank.

The deal was launched into a market that had recovered from the volatility of recent weeks, but demand for previous deals had still been relatively slow to build.

“In the context of the current market environment, it was quite remarkable to see the traction we had with investors, with EUR1bn of orders in 40 minutes and then EUR2bn after two hours,” said Vincent de Vries, director, FIG DCM, at ING, which was also green bond advisor to DNB. “It’s been a while since we’ve seen a bookbuilding process like this.

“In particular, there was very strong traction from green accounts, whether that’s green pockets within larger investor groups or dedicated accounts that only come in when there’s a green flavour to a transaction.”

Old investors, new green money

Banks were allocated 60% of the deal, asset managers 24%, insurance companies and pension funds 9%, and central banks and official institutions 7%. Accounts in Germany and Austria bought 51%, the Benelux 17%, the UK and Ireland 14%, the Nordics 8%, France 5%, Asia 3%, and others 2%.

According to calculations by ING, around EUR400m of orders came from “dark green” accounts, EUR400m from “medium green”, and EUR400m from “light green”.

“At least EUR1.2bn of the more than EUR2bn book was therefore related to green investors,” said Tellefsen. “We can easily say that for a non-green covered bond the book would probably have been EUR400m-EUR500m smaller, so the green element was definitely important.”

He noted that many of the accounts that participated in the deal had bought DNB covered bonds before, but that some came back in greater size than they would have for a conventional covered bond because they have dedicated green bond funds.

“We saw that many of our old investors brought their new green money,” he said. “I expect that the green investor base will continue to grow, as more and more fund managers have to set up green funds because investors want to invest green.”

De Vries added that there were tangible signs of market growth since January, when SpareBank 1 Boligkreditt sold the first and only other green Norwegian covered bond, a EUR1bn seven year issue.

“We definitely got the feeling that the market has progressed quite significantly in terms of green participation, even versus the SpareBank 1 green covered bond,” he said.

Supported by the additional green demand, the deal provided the strongest evidence yet seen for a green pricing benefit in the euro covered bond market, said bankers. The deal was priced at the same spread as a EUR1bn five year conventional covered bond from compatriot SpareBank 1 Boligkreditt (SpaBol) on Monday, even though the issuers’ conventional covered bonds tend to trade in line. SpaBol’s shorter, smaller deal attracted final demand of over EUR1.2bn.

Tellefsen said it is too early to say how soon DNB Boligkreditt may return to the green covered bond market, but that the issuer currently has sufficient eligible collateral to issue EUR5.5bn of green bonds. Its pool of eligible assets is expected to be supplemented by a new green mortgage product, launched by DNB last week.

“The green investors we met also looked very positively at this green mortgage product,” he added. “We expect this will help us collect even more eligible assets.”

DNB Boligkreditt unveiled its green bond framework on 29 May. Its framework is based on residential mortgages for the most energy efficient properties in Norway and is similar to that used by SpaBol, with both having been influenced by feedback from the Climate Bonds Initiative, which last week signed off its certification of SpaBol’s issue.

“DNB was very keen to ensure integrity and transparency in its approach for the inaugural green covered bond – including a pre-issuance CBI certificate and a technical report by green building consultant Multiconsult,” said Vlad Mitroi, vice president, sustainable markets unit, ING.

He said investors also appreciated the issuer’s “solid green bond framework” and its broader approach to sustainability, noting that DNB is ranked fourth out of 344 financial institutions by Sustainalytics.