State Bank of India to raise dollar funds through maiden green bonds

State Bank of India (SBI) is in the international market to raise dollar funds through its maiden issuance of green bonds.

According to people with knowledge of the matter, the bank was engaged in investor calls throughout Monday, and will decide on the issue size and likely pricing only after getting a commitment.

The bank was looking to raise at least $500 million, they added. SBI executives could not be reached for comment.

Green bonds are regular bonds, the proceeds of which are used to fund sustainable green projects. A certification is needed by the issuer from agencies, to show to investors. Green bonds generally attract lower coupon than regular bonds. Some international investors are allowed to invest only in green bonds.

Banking sources said the bond yields are showing upward trajectory in the current conditions. The feedback on pricing from market is London Inter-bank Offered Rate (LIBOR) plus 110 basis points. However, actual picture would be clear close to firming up commitment.

The bank plans to raise up to $3 billion in green bonds and is working under a framework set by KPMG and Climate Bonds Initiative, which determines eligibility criteria for green projects and provides the requisite transparency and disclosures for investors.

The managers for the issue include Bank of America Merrill Lynch, BNP PARIBAS, Citigroup, Crédit Agricole CIB, HSBC, SBICAP and Standard Chartered Bank.

SBI has given a commitment to the government to finance viable renewable energy projects worth Rs 816 billion over a five year period (2015-2020).

According to the bank’s green bond framework, the proceeds would be used for giving loans for renewable energy, including solar, wind, hydropower and geothermal, and low carbon buildings, industry and energy-intensive commercial, energy efficiency processes, waste and pollution control and sustainable transportation projects such electric vehicles.

Typically, for an emerging markets issuer raising funds from Europe, the percentage of such dedicated green bonds would be at least 40 per cent, whereas, for an Indian issuer, the percentage is lower as green standards are not well defined in the country, according to a source familiar with the issuer.

China is the largest issuer of green bonds.

State Bank of India