Behind Manulife’s historic $600 million green bond issue: first for an insurer in domestic market

Manulife Financial made financial history this week when it priced a $600 million offering of green bonds, the first insurer to raise capital in this form in the domestic market.

The insurer, which completed a green bond in the Singapore market late last year, offered $600 million principal amount of 3.317 per cent fixed/floating subordinated debentures due in May 2028.

Eleven firms were in the syndicate that was co-led by RBC Capital Markets, CIBC Capital Markets and TD Securities. The expectation is that the fixed, then floating rate security will be called after five years, or when the fixed-rate period ends.

The net proceeds will be used to finance or refinance, “in part or in full, new and/or existing Eligible Assets as defined in the Manulife Green Bond Framework.”

In a release Manulife said the Framework is aligned with the International Capital Market Association’s Green Bond Principles 2017, “and directs the use of proceeds towards renewable energy, green buildings, sustainably-managed forests, energy efficiency, clean transport, sustainable water management and/or pollution prevention and control.

And to fully ensure that Manulife is really offering a green bond, the financing, which started out with a minimum target of $500 million, comes with a second opinion.

“Sustainalytics is confident that Manulife is well positioned to issue a Green Bond, and that the Manulife Green Bond Framework is robust, transparent and in alignment with the four pillars of the Green Bond Principles 2017,” said a report from Sustainalytics.
As Kermit from Sesame Street has noted on many occasions: it’s not easy being green.

Here are some of the highlights of Manulife’s latest offering – that is set to close Wednesday.

YIELD: The (A Low/A-) rated debentures were priced to yield 3.317 per cent – which represented a spread of 115 basis points above the Canada curve. The issue was launched at 118 basis points over the Canada curve with pricing expected to be in a range of plus or minus three basis points. One source said the transaction, as always, “was priced in the context of the market,” with “de minimis” additional costs associated with having the issue certified green and then bringing it to market.

Associated with the final coupon is price tension, which is normally defined as the tug of war between buyers and sellers concerning the price of an asset. In such an environment, investors will typically increase the size of their order, which adds to demand. But that extra potential demand doesn’t necessarily flow through to a lower than otherwise yield.

INVESTORS: About half the bonds were allocated to buyers who either have green designated capital or are signatories to UNPRI (the United Nations Principles of Responsible Investing.) The usual suspects bought the rest: banks, hedge funds and retail.

According to information provided by TD, there were more than $1.85 million of orders for the issue. In all 65 investors received an allocation – which means the average allocation was about $9.2 million.