PIF’s $5.5bn green bond sets tone for ‘strong pipeline’ in Mena

Reuters/Faisal Al Nasser

• Global GSSSB issuance expected to reach $900bn-$1trn this year
• Green bonds drive market, with 55% of share
• Saudi leading issuer in region, followed by UAE

Saudi Arabia’s sovereign Public Investment Fund has raised $5.5 billion through its latest green bond issuance, supporting expectations of a strong year for sustainable bonds in the Middle East. 

The issuance was more than six times oversubscribed – with books exceeding $33 billion – and will be used to finance or refinance eligible green projects, in accordance with PIF’s Green Finance Framework. 

It follows PIF’s inaugural 100-year green bond in October 2022, the first of its type issued by a sovereign wealth fund. 

PIF will allocate an amount equal to the net proceeds of the issuance to fund projects in renewable energy, energy efficiency, sustainable water management, pollution prevention and control, green buildings and clean transportation.

“PIF’s second green bond issuance underlines the role that PIF is playing in supporting Saudi Arabia’s green agenda, as well as diversifying the local economy and unlocking new and sustainable sectors,” Fahad Al-Saif, head of global capital finance division at PIF, said. 

• Rising demand for green bonds, despite ‘bleaching’
• Saudi Arabia’s PIF starts selling debut green bonds
• Abu Dhabi bank raises $500m in debut green bonds

Reuters on Friday reported that Dubai Islamic Bank, the UAE’s biggest Islamic lender, is to raise $1 billion from the sale of a five-year long sustainable sukuk.

Demand for the debt sale was over $2.75 billion, excluding interest from joint lead managers. 

The latest announcements come on the back of a report earlier this week by the S&P ratings agency which noted that the Middle East will continue to see “a strong pipeline” of green, social, sustainable, and sustainability-linked bond (GSSSB) issuance in 2023. 

Dennis Sugrue, senior director at S&P Global Ratings said that in 2023 “global GSSSB issuance will return to growth, reaching $900 billion to $1 trillion, nearing the record $1.06 trillion in 2021″.

This follows a year in which “contractionary monetary policy and macroeconomic uncertainty pulled down” global bond issuance to $854 billion, he said. 

S&P forecasts that total global bond issuance will grow only moderately, at 2.5 percent, in 2023.

However, Sugrue predicted that “faster growth for GSSSB issuance will lead to a larger market share for this asset class across all regions and sectors”, estimating that it should hit between 14 to 16 percent this year. 

Geographically, S&P expects Europe, the Middle East and Africa to retain the leading share of GSSSB issuance across all regions in 2023.

Green bonds are expected to continue to drive the overall GSSSB market, with issuance decreasing less than any other bond type in 2022. They accounted for over half of issuance (55 percent) in 2022, while social (19 percent), sustainability (17 percent) and sustainability-linked bonds (8 percent) were slightly down compared to 2021.

Yet S&P said it expects sustainability bonds to become more prevalent. 

Data from Bloomberg’s Capital Markets League Tables shows that total GCC green and sustainable bond and sukuk issuances reached $8.5 billion from 15 deals in 2022, compared with $605 million from six deals in 2021.

Saudi was the leading issuer within the region, accounting for more than half of the total volume, and the UAE comprised a sizeable share of the remaining issue volume. 

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Meanwhile, Arab Petroleum Investments Corporation (Apicorp) announced on Wednesday that assets related to its debut green bond had reached $335 million as of October 2022.

Its debut $750 million green bond issuance in October 2021 has been allocated to 10 projects in five countries including Saudi Arabia, UAE, Egypt, Jordan and Spain.

The financed projects include solar and wind farms, waste-to-energy plants and wastewater treatment facilities. Some of the largest projects financed include Shuaa 2 and Shuaa 3 in the UAE and Sudair One in Saudi.

The remaining $415 million from the unallocated green bonds was invested into other green assets.

Apicorp’s Green Bond Report for 2022 showed its portfolio of environmentally linked assets financed for the period grew to $664 million. This makes up 13 percent of the total loan portfolio, compared to 3 percent in 2016.

“Through our due diligence process, deployment of proceeds has been challenging given the economic conditions that impact manufacturing and the supply chain, but we expect conditions to improve and we can finance high quality clean energy projects with the remaining proceeds,” Dr Yasser Gado, treasurer and chairman of the Green Bond Committee at Apicorp, said.

In November Apicorp signed a $75 million Islamic financing agreement with London-based Hartree Partners Power & Gas Company to fund high quality voluntary carbon offsets, supporting the Gulf’s net zero emission targets.

The agreement, known as a Murabaha, marks the first time this type of facility will be deployed in the Mena region.