Axis Bank to raise $500 million through green bonds

Mumbai: Axis Bank will raise at least $500 million through green bonds from the international market, the first such issue for the private lender, according to two bankers.

India’s third largest private bank would be the fifth issuer of green bonds ever since Yes Bank issued the first such bond in February 2015. Yes Bank had raised Rs.1,000 crore through rupee-denominated green bonds. Other lenders that have raised green bonds include IDBI Bank and Exim Bank.

“The initial pricing guidance for the Axis Bank issue is 175 basis points over the US Treasury note,” said one of the bankers cited above, asking not to be named. One basis point is one-hundredth of a percentage point.

Green bonds are like any other debt instrument but the funds raised from such bond sale are used exclusively for renewable energy projects. With the Indian government and private sector increasingly focusing on renewable energy projects, the demand for such funds is expected to rise over time. India has a target of installing 100GW of solar power capacity and 60GW of wind power capacity by 2022. The total installed capacity of renewable energy in the country stands at 30GW, of which wind energy projects account for 24GW, solar contributes 5GW and the remaining comes from smaller sources, such as biomass.

A number of international investors have earmarked a specific corpus of money to invest in clean energy projects, which allows products such as green bonds to secure strong interest.

“There is access to wider base of investors which drives down the cost for the issuer. But for the investor, a green bond is similar to any other bond and tied to the issuer’s rating,” said the second banker.

Green bond issuances from India have picked up pace but still remain sporadic, said the second banker quoted above. A total of about Rs.8,700 crore has been raised through the issue of green bonds so far, according to industry estimates. Most of this has been raised by banks for on-lending to firms.

The total issuance volume of green bonds globally so far in calendar 2016 is $23 billion, according to Climate Bond Initiative (CBI), a not-for-profit entity that has laid down broad principles for the market.

Fitch Ratings has assigned a rating of BBB- with a stable outlook to the proposed $500 million bond issue by Axis Bank, said the rating agency in a note on Monday.

The tenor is likely to be around five years, and the notes are to be issued by Axis Bank’s Dubai International Financial Centre branch, said Fitch.