Lendlease reaps $500m from green bond issue in largest local deal

Green bonds come at a premium for now but are getting cheaper for companies to issue as more big institutions take on green mandates.

Green bonds can help diversify a company’s investor base and could lower funding costs in future.

Global development and construction giant Lendlease has received strong support for its debut green bond issue, raising $500m to help back the delivery of its $113bn development pipeline.

The deal follows other green-related issues in the property sector by Stockland and Investa and is one of the newer kinds of financial instruments in Australia.

More local companies are tipped to tap the green bond market as pricing approaches normal debt issues and they are already providing cheaper finance in Europe.

Lendlease recently committed to become a 1.5ºC aligned company and the deal was the largest green bond issued by an Australian non-financial corporate. Other to issue bonds include supermarket company Woolworths.

The seven-year fixed rate bond pays a coupon of 3.4 per cent and proceeds will be focused on green buildings and earmarked to eligible projects in Lendlease’s global portfolio of 22 urbanisation precincts, that include the Sydney’s Barangaroo and Britain’s International Quarter London.

The buildings will drive initiatives from the lowering carbon emissions, to reducing the environmental impact of materials and delivering health and wellbeing benefits.

The bond issue follows Lendlease’s recent announcement of new sustainability targets reflecting the group’s commitment to tackle the climate crisis and create measured social value.

Lendlease chief financial officer Tarun Gupta said significant demand for the bond demonstrated the strong interest the investment community has in supporting sustainably driven projects.

ANZ, Commonwealth Bank of Australia, HSBC, NAB and SMBC Nikko were mandated as joint lead managers with the first three banks also acting as Green Bond Advisors.

HSBC Global Banking and Markets director Michael Bailey said the bond pricing reflected Lendlease‘s BBB- credit rating and development activity.

“It’s reflective of capital markets and markets generally being accepting of most asset classes given central bank liquidity,” he said.

The bond was primarily backed by local institutions, which picked up 60-70 per cent of the allocations, followed by interest from Asian and Europe.

“Sustainability and ESG are asset classes that institutions are proactively looking for,” he said, noting that some mandates for global institutions were structured so they considered socially sustainable bonds.

Local companies are now setting up frameworks to allow them to issue green bonds and more are looking at opportunities to issue bonds with “some form of green label”.

Green bonds can help diversify a company’s investor base and could lower funding costs in future.

“We’re seeing now the premium attached to green bonds is reducing in some areas,” he said, noting that in Europe they were cheaper to issue than standard debt.

Locally, diversifying funding remains the key but Mr Bailey said the “glide path” was for companies to be able issue bonds at a cheaper rate than standard debt.