claire coustar 16x9

The German lender’s first green Formosa bond capitalises on Taiwanese insurers’ deep pockets and growing interest in renewables. 

As the world of sustainable investing grows, so too do the number of niche, new asset classes devised at tackling climate change. The green segment of the Formosa market, consisting of notes sold by foreign issuers in Taiwan and denominated in foreign currency, is but one example.

To date, there have been 10 green Formosa bonds issued worth a total of $1.5bn. That is a small fraction of the broader Formosa market, which according to Refinitiv saw a record $22.4bn worth of issuance last year. Deutsche Bank has been a key supporter of the asset class’s growth — Germany’s biggest lender launched the first-ever Formosa bond back in 2006 and ranks second in bookrunner league tables.

“We have a long history with Formosa, and most of our work has been bringing corporates and sovereigns to market,” says Claire Coustar, the bank’s global head of environment, social and governance for fixed income and currencies. Its clients include tech giants such as Apple and Intel, and governments stretching from Qatar to Mexico.

A perfect profile

Deutsche Bank’s work in the country is by no means limited to the bond market. “We have been active in Taiwan’s renewable energy sector over the past three to four years, as there has been a big push by the government to support offshore wind,” says Ms Coustar. The bank has been lending and providing hedging solutions for international offshore wind developers, including Germany’s WPD on its landmark 640 megawatt (MW) Yunlin project being built in the Taiwan Strait. Late last year, it helped finance Canadian pension fund Caisse de dépôt et placement du Québec and Cathay PE’s $2.68bn acquisition of a 50% stake in a 605MW wind farm.

We are a new issuer with a different profile to what has been seen in the market

Claire Coustar, Deutsche Bank

With this profile, it was only natural for the bank to wade into the nascent green Formosa segment as an issuer. It was also buoyed by strong appetite among local insurers, the predominant buyers of Formosa bonds, for green infrastructure. “It is a part of the market that has been very keen on investing in renewables,” says Ms Coustar. “And some of those form part of the asset pool that backs our green financing framework.”

Indeed, Deutsche Bank launched its green bond framework in 2020, putting it to work in June that year with its €500m green debut. It followed up with a $800m deal in March. “We wanted to provide access to that sort of investment in the Formosa market,” says Ms Coustar.

Triple-digit orders

Given its entrenched role in Taiwan’s capital markets, the bank has eyed the prospect of a green Formosa for some time. Its fundraising team started discussions with sales around spring and began investor talks in early summer. Deutsche Bank planned to dual-list the notes on the Taipei and Luxembourg exchanges, a first-of-its-kind among international banks that required pre-approval from the Taiwan bourse. “There was some back and forth, but they were very happy to help us and get that sign-off,” says Ms Coustar.  

Based on investor feedback and in line with insurers’ preference for long maturities, the tenor was set at 34-years with a five-year non-call period. Deutsche Bank acted as the sole bookrunner and provided no official price guidance through investor talks. On August 19, the firm launched and closed a $200m zero-coupon bond offering a 3.5% effective yield to maturity. The deal was twice oversubscribed. “We had some orders that came in at three digits,” says Ms Coustar, referring to $100m-plus orders.

Compared to the billion dollar-plus deals, which have become a fixture in the global green bond market, Deutsche Bank’s green Formosa appears relatively small. But Ms Coustar emphasises that working with the bank’s green bond framework is a balancing act.

“When issuing off that programme, we look at the mixture of debt profiles along the curve — not just in terms of benchmark bonds, but the short-term liabilities in the form of green deposits and green repos — how our green assets are amortising and maturing, and how that pool is changing,” she says. “So, for us right now, this size suited us and what we wanted to do.”

One eye on the market

The deal capitalises on Deutsche Bank’s various investment banking efforts in the country. For Taiwan, it adds a new dimension to its green Formosa offering. “We are a new issuer with a different profile to what has been seen in the market,” Ms Coustar notes. “That continues the market’s growth and clearly, based on the over-subscription, we see some positive uptake from the investor base there.”

This is one contribution towards a broader year of progress for responsible investing in Taiwan. In April, a $1.5bn issuance by Chile’s government marked the first sustainable Formosa bond by a sovereign. One month later, the Taipei Exchange launched a dedicated segment for green, social and sustainable bonds.

On the prospect of repeat sale, Deutsche Bank is keeping its options open. “We’ll keep an eye on the market to see when it might make sense for us to have another new issuance, if at all,” says Ms Coustar. “But at this stage, we are happy with the size, pricing and tenor profile.”

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