The Saudi sovereign “Public Investment Fund” successfully issues its first green bonds despite market fluctuations

DUBAI – Archyde.com: The Saudi sovereign “Public Investment Fund” faced little scrutiny when it sold $3 billion in green bonds last week, in its first offering, sources familiar with the matter said.
Green bonds are those whose sale proceeds are invested in renewable energy projects that do not emit carbon emissions.
Two bankers told Archyde.com that while other bond issuers in the region remained wary of market volatility, the sale of the first green bond issuance from any sovereign wealth fund went smoothly and without much hindrance from investors for ESG bonds.
One of them indicated that an investor, during a call attended by the two bankers, mentioned one concern, but did not provide further details.
Abdul Salam Alawi, head of capital markets at Deutsche Bank in the region and one of the pioneers of the deal, said that the total final requests amounted to approximately $ 25 billion, and that the fund received requests from investors interested in the bonds with a maturity of 100 years.
He added that the Public Investment Fund’s issuance of the first 100-year green bonds demonstrated investors’ confidence in its credit strength and Saudi Arabia’s long-term commitment to transforming the energy sector. The world’s largest oil exporter pledged last year to achieve carbon neutrality by 2060.
The fund raised an issuance premium of 65 basis points (0.65%) on the five and ten-year tranches, which raised $1.25 billion each. Their returns are only about 10 basis points below the yield curve of the Saudi oil giant, Aramco.
The fund sold 100-year green bonds worth $500 million – the first bonds with this term in an initial offering or issued by a sovereign wealth fund, and the first 100-year bonds in the region.
“The Public Investment Fund took the lead in many ways in this deal, and it sent a very strong signal in a very challenging market environment,” Alawi said.
Fixed income analysts said the 100-year bonds were trading up 4 cents against the dollar on the parallel market, while the other two tranches kept the issue price or traded slightly lower.
According to a banking document seen by Archyde.com, the new Saudi bonds recorded the highest performance in Britain, followed by the Middle East and North Africa, then American investors abroad, Europe and Asia.
Investors in the United States were unable to participate because the Saudi Public Investment Fund has two-year financial statements, and needs three years to issue them in the United States.
Alawi said that the fund is expected to continue issuing green bonds, including green sukuk, and benefiting from the US domestic market in the coming years.
Investor demand for ESG-related financing has risen, and interest has risen in the Gulf and the broader Middle East, but concerns remain about the allocation of ESG funds to a region that remains heavily reliant on oil and gas revenues and has a poor human rights record. .
Some governance watchers criticized the deal, specifically the forty percent stake that the fund acquired in Aramco in February.
“I think the focus of investors on the Public Investment Fund’s issuance of green bonds is exaggerated,” said Zina Rizk, executive director of fixed income at Arqaam Capital, which invests in bonds. They have green investments and there is a clear path to continue with those investments.”
A presentation to investors to promote the bond showed that the fund is expected to invest $10 billion by 2026 in green projects. The fund pledged to invest nearly $40 billion in Saudi Arabia until 2025.
Egypt, which is due to host the 27th United Nations Climate Conference next month (COP27), became the first sovereign green bond issuer in the region in 2020.
Several sovereign wealth funds and other government-related entities in the region are exploring – or preparing – their own green frameworks for the eventual issuance of green bonds.
First Abu Dhabi Bank, one of the most active green bond issuers in the region, followed the Saudi Public Investment Fund’s deal with a $700 million green bond sale a day later.
Three bankers said they generally saw a narrow streak in the near term, as bond issuers seek to continue adjusting to rising interest rates as central banks led by the Federal Reserve seek to tame decades-old high inflation.