€5.9bn Dutch Green Bond Deemed Expensive

Dutch asset managers APG and PGGM are among the investors who snapped up the eagerly anticipated green bond issued by the Netherlands yesterday.

The €3.8bn pension fund for public transport, SPOV, and fiduciary manager Cardano also bought into the new bond, which raised €5.9bn from investors in total. It was the first green bond to be issued by a AAA-rated sovereign.

However, MN, the €135bn asset manager for the metal and engineering sector schemes PMT and PME, backtracked from its initial subscription for €200m, as it deemed the bond too expensive.

Blue Sky Group, the asset manager for the KLM pension funds, said it hadn’t subscribed as the green bond didn’t match its ESG criteria or the passive investment strategy of its clients.

One third of the €5.9bn raised was allocated to pension funds and insurers. Investors subscribed for €21bn in total.

At the start of the auction, the Dutch State Treasury Agency offered 18-21 basis points above 10-year German government bonds, but reduced this to 18bps when it became clear how much interest investors were showing.

APG was allocated €247.5m in total, €171m of which went to its main client, civil service scheme ABP. Its other clients – the sector schemes for the building industry (BpfBouw) and housing associations (SPW), as well as its own staff scheme PPF APG – were allocated €47m, €29m and €0.5m, respectively.

APG said it had subscribed for €500m at various price levels. At 2018-end, the manager had €5.5bn worth of green bond holdings, including government bonds from France, Belgium and Ireland.

PGGM was allocated €82.5m for the €213bn healthcare scheme PFZW and €1m for its separate government bond fund.

APG and PGGM were allocated an additional 10% each, as the Treasury Agency classified them as “green investors”, eligible for preferential treatment.

ABP has targeted €58bn of investments to be in line with the UN’s Sustainable Development Goals by 2020, while PGGM aims to achieve €20bn of impact investments by then.

Both asset managers indicated that the price and return of the Dutch green bond were at a par with regular government bonds.

SPOV obtained the €11m it subscribed for, while Cardano was allocated €70m for its pension fund clients.

Rik Klerkx, head of Cardano’s LDI team, said the green bond was attractive, despite its yield of 0.557%.

“This is higher than the return on German government bonds,” he said. A 10-year German bund yielded -0.7% as of this morning, according to Bloomberg.

The Dutch government is to use the bond’s proceeds for sustainable projects, including the generation of clean energy, increasing the energy efficiency of housing, improving flood defences and encouraging clean transport.

Among its concrete plans is the construction of a guarded bicycle shed near Utrecht Central Station offering space for 12,500 bicycles.

Wopke Hoekstra, the Dutch finance minister, has said that the government would reopen the bond to new investments in the years ahead to improve its liquidity, with an eventual target of €10bn.