Romania, the inaugural green bond issue. Impressive interest from investors - TREZOR

On February 15, 2024, the Ministry of Finance carried out the second transaction on the international financial markets, by launching two tranches of Eurobonds with maturities of 7 years and 12 years, denominated in EUR. The 12-year tranche represented Romania's inaugural green Eurobond issue.

The Eurobond issue had a total value of EUR 4 billion and a final subscription of more than EUR 14.8 billion with the participation of a number of more than 250 investors. The issue raised exceptional interest from investors, the order book exceeding the value of EUR 17 billion during the transaction.

"I am glad that Romania's first green bond issue was a real success, being marked by a series of records. This issue has a complex process behind it, which involved the development and evaluation of a solid framework for financing green projects, for which I want to congratulate my colleagues from the Treasury. I would point the extraordinary demand from the investors, the credit risk margins obtained which reflect a greenium of 10bps as well as the quality of these investors, around 45% of investors in the green tranche being socially responsible investors/with green mandates (ESG). In addition to diversifying the investor base, this issue is a concrete step in our mission to achieve our sustainable development goals, but also to support projects with a positive impact for improving the quality of Romanian’s lives", Minister Marcel Boloș said.

Highlights of the first green bond issue

The 12-year maturity represents the largest EUR-denominated green tranche issued by an emerging market issuer (ESG debt instruments) to date. The transaction also represents the largest issuance of EUR-denominated green Eurobonds by an emerging market issuer. Last but not least, the issue was the largest transaction for Romania on the international financial markets and the final subscription obtained was the largest so far for our country.

The volume issued for the tranche with a 7-year maturity was EUR 2 billion, at a reoffer yield of 5.394% and a coupon of 5.375%, while for the green tranche with a 12-year maturity the volume issued was EUR 2 billion, at a reoffer yield of 5.734% and a coupon of 5.625%. The proceeds obtained from this issue were settled on February 22, 2024.

In the process of developing the Green Bond Framework the Ministry of Finance benefited from technical assistance from the World Bank, which had the following comment on Romania’s inaugural green bond issue:

“We congratulate the Government of Romania for this groundbreaking transaction. As we navigate an era of pressing challenges, where the livability of our planet is being challenged and conflict and rising disparities are pressing, the role of sustainable finance has never been more critical to support World Bank member countries. We are extremely pleased to have provided technical assistance to facilitate the issuance of Romania’s first sovereign green bond and we look forward to partnering with the government on the next steps in the process such as the allocation and impact reporting.” - Anna Akhalkatsi, World Bank Country Manager for Romania.

The issue of Eurobonds, launched on February 15, is part of the external financing plan for 2024, through which the Ministry of Finance aims to ensure the financing needs from international markets for this year, as well as to strengthen the financial reserve in foreign currency at the disposal of the State Treasury.

More than four times oversubscription for green bonds

The Eurobond issue was oversubscribed more than 3 times for the 7-year tranche, respectively more than 4 times for the 12-year green tranche. At the same time, the issue benefited from a very diversified investment base both geographically and from the perspective of the types of investors.

The execution strategy allowed the cost of the new tranches to be reduced compared to the announced level, in line with the increase of the order book, thus the initial indicative yields being reduced by 35 basis points for the 7-year maturity and by 45 basis points for the 12-year maturity respectively.

Compared to the EUR-denominated issue made in September 2023, the yields related to the 7- and 12-year maturities recorded decreases of 58 and 71 basis points, and the margins representing Romania's credit risk decreased by 54 and 49 basis points, respectively.

New issue premiums were negative, respectively -5 basis points for the 7-year maturity and -15 basis points for the 12-year maturity, implying a greenium of 10 basis points for the green tranche of the transaction. The new issue premium for the 12-year tranche was the lowest premium achieved by a CEE sovereign issuer since 2015 to date.

From the point of view of the types of investors, for both tranches the preponderance of "real money" type investors can be distinguished, i.e. privately managed asset funds that had a weight of 67% and 66% respectively within the 7- and 12-year maturities. At the same time, pension funds and insurance companies had a distribution of 10% and 5%, sovereign funds and official institutions had a 6% allocation for both tranches, commercial and private banks had a distribution of 6% and 13% and hedge funds and brokers benefited from an allocation of 11% and 10% respectively. About 45% of the 12-year green tranche was allocated to socially responsible investors (SRI) / with green-ESG mandates or known to use socially responsible investment principles/green investment principles.

In terms of the geographical distribution of investors, for the 7-year maturity, it was as follows: UK and Ireland 46%, Rest of Europe 22%, USA 13%, CEE 7%, Germany, Austria and Switzerland (DACH) 5%, Romania 4 % and the rest of the world 3%.

For the 12-year maturity, the geographical distribution of investors was as follows: Great Britain and Ireland 48%, rest of Europe 19%, Romania 11%, USA 9%, CEE 8%, Germany, Austria and Switzerland (DACH) 3%, and the rest of the world 2 %.

The transaction was brokered by Citigroup Global Markets Europe AG, Este Group Bank AG, HSBC Continental Europe, J.P. Morgan SE and Société Générale. Citigroup and HSBC also played the role of structuring banks for the green tranche.

Green projects

Romania's sovereign green bond framework highlights our country's commitments, current environmental agenda, as well as green financing plans. It lists the eligible projects that can be financed by issuing green bonds and the categories of activities associated with environmental benefits.

Projects labeled as green include those related to renewable energy production, energy efficiency, pollution prevention and control, clean transportation, sustainable water and wastewater management, climate change adaptation, green buildings and environmentally sustainable management of living natural resources and land use.

Among the most important green projects eligible for financing are the development of the metro transport network in the cities of Bucharest and Cluj-Napoca, the electrification of the railway to ensure fully electric railway services in the main urban areas in Romania (county residences and other cities with over 50,000 inhabitants), rehabilitating existing defense lines in accordance with the EU Flood Directive and the National Flood Risk Management Strategy, increasing the energy efficiency of the building stock and establishing new urban forest areas.