OP plans 2021 green covered debut, eyes year-end trade
OP Mortgage Bank is planning to launch its first green covered bond and offer a new green mortgage product next year, its managing director told The CBR after the publication of its framework yesterday (Wednesday). The Finnish issuer meanwhile hopes to sell a regular benchmark before year-end.
Although Denmark, Norway and Sweden have all had green covered bonds, there has not previously been any such issuance from Finland.
OP Financial Group inaugurated its green bond framework in February 2019 with a €500m five year senior preferred bond issued via OP Corporate Bank.
The use of proceeds of the green covered bonds will be the financing of energy-efficient residential buildings – one of six categories included in its parent’s framework.
Sanna Eriksson, managing director of OP Mortgage Bank, said a lack of publicly available energy performance certificates (EPCs) for buildings contributed to the time taken to set up the green covered bond framework, as EPCs are available for condominiums but not single or two-family houses.
“Since we have almost 40% of the mortgage market here in Finland, we thought that if anyone has green mortgages on their balance sheet, it’s us,” she said, “but it’s been massive work going through our existing loan portfolio to find and tag the green ones. We’ve been collecting EPCs where possible, and otherwise used statistical modelling to identify the green mortgage loans.”
The process of identifying green mortgages could in future be aided by a green mortgage product, which OP plans to launch next year.
“At this time, the demand for green comes more from the investor side, whereas for private customers the green mortgage is still a very niche product,” said Eriksson (pictured). “But we plan to offer such a product as well next year because we see that to become more sustainable, we need more and more products for our customers, both on the corporate and the personal customer side.”
The green covered bond framework – on which OP Mortgage Bank was advised by HSBC – is believed to be the first to be finalised since the publication of the EU Taxonomy regulation in June and as such complies with that and the EU Green Bond Standard on a best efforts basis, as well as the Green Bond Principles.
Eriksson said a debut issue is planned for next year. OP is not yet ready to disclose the size of the eligible assets for the green covered bonds, but she said the first issue, although a benchmark, is likely to be smaller than the €1bn or €1.25bn amounts it has previously sold.
OP Mortgage Bank is meanwhile hoping to issue a non-green covered bond before year-end, according to Eriksson – it has a €1.25bn covered bond maturing on 23 November.
“After the US election, we don’t know what’s happening with the market, but we are still planning to issue a regular covered bond this year,” she said.
OP has only issued the one green bond under the broader group framework, the deal in February 2019, and Eriksson attributed the lack of green issuance this year to the disruptions of the coronavirus crisis.
“But we’ve been doing a good job on the corporate side, where the stock of green loans has grown,” she added. “We have also been focusing our efforts on coming up with the green covered bond framework.”