22 April 2016
The Clean Energy Finance Corporation (CEFC) has invested $20 million in the first certified green bond transaction of its type in the Australian market, linked to solar PV and renewable energy assets. The CEFC investment is part of a new securitisation issued by FlexiGroup Limited, which includes a $50 million ‘green’ tranche, which has been certified by the global Climate Bonds Initiative.
CEFC CEO Oliver Yates said: “This transaction is a significant milestone in the development of the Australian green bond market. Institutional investors who have reduced their exposure to the fossil fuel sector are looking for new investment avenues linked to clean energy. Green bonds can provide solid returns for investors wanting to contribute to positive climate change solutions. Other issuers can attract green investment support by also identifying and separating investment opportunities related to clean energy assets.”
FlexiGroup is an ASX-200 listed financial services group. It operates in Australia, New Zealand and Ireland, and partners with retailers including Harvey Norman, IKEA and AGL Solar to offer finance to retail and business customers. Through Certegy, a wholly-owned subsidiary of FlexiGroup, it has financed approximately 120,000 consumer solar installations, which equates to some eight percent of the Australian installed base. The transaction was arranged by NAB, and lead managed by NAB and CBA.
CEFC Executive Director, Corporate and Project Finance, Richard Lovell, said the FlexiGroup green tranche was structured to link to the size of the underlying solar assets, providing investors with a clear demonstration of the credit performance of these assets. This could encourage capital markets to provide more direct funding capacity for the renewables sector more broadly.
“This transaction represents the first certified green tranche of a securitisation in the Australian market. It expands the types of financial instruments available to the capital markets, combining an innovative financing approach with a focus on rooftop solar and storage,” Mr Lovell said.
“The use of certification from the Climate Bonds Initiative on a securitisation tranche is new to the Australian market and represents a significant innovation in the engagement of the capital markets with the renewables sector. We believe this bond will demonstrate increased capacity for financial markets to support the further origination of small-scale renewable assets such as solar and solar storage.”
The CEFC has identified climate bonds as an important source of investment growth for Australia’s clean energy sector as it expands to meet the requirements of the Renewable Energy Target. Additional finance is also needed to capitalise on growing investment opportunities supporting energy efficiency and lower emissions, including Australia’s cities and the built environment.
In another market first, the FlexiGroup green tranche also achieved a relatively better price than the comparable uncertified tranche.
“Before this issue the approach of the market to most green bond transactions has been to price them in line with similar non-green bonds issued from the same issuer,” Mr Lovell said. “We hope the pricing outcome on this transaction will encourage other issuers to include similar green tranches in their securitisations where possible, further expanding the availability of liquidity for clean energy investments.”
Green bond issuance has risen significantly in recent years, in response to investor demand for opportunities targeting clean technologies, renewable energy and low-carbon infrastructure. The Climate Bonds Initiative estimates that labelled green bonds have grown from under US$5 billion in 2010 to nearly $42 billion in 2015. Bloomberg New Energy Finance reported a total of $15 billion in new green bonds worldwide in the first quarter of 2016, a near-record quarter for green bond issuance.
FlexiGroup is a diversified financial services group providing leasing, vendor finance programs, no interest ever, interest free and Visa cards, mobile broadband, lay-by and other payment solutions to consumers and businesses. Through its network of more than 12,000 merchant, vendor and retail partners FlexiGroup has extensive access to four key markets: business to consumer, business to business, retail to consumers and small business customers, and online.