Australia's asset-backed green bond

National Australia Bank (NAB) has launched Australia’s first Green ABS securitisation transaction for financial services group FlexiGroup. It represents Australia’s first AUD-denominated, publicly offered asset-backed green bond note and is said to be the world’s first Climate Bond Certified ABS transaction to meet the criteria for certification under the Climate Bonds Standard by the Climate Standards Board.

The Flexi ABS Trust 2016-1 transaction was launched with a transaction size of $260m, which includes a $50m ‘green’ tranche. It will be backed by $256.2m of consumer receivables originated by Certegy Ezi-Pay, a wholly owned subsidiary of FlexiGroup, with residential solar photovoltaic PV systems representing 33.5% of the pool. Issuance proceeds of the Class A2-G notes will be linked to funding these solar PV systems.

NAB’s executive general manager, capital financing, Steve Lambert, said preliminary investor feedback on the transaction including the green bond has been pleasing. He said the transaction offers “yet another option for investors and the emerging impact investment market in Australia”.

The Clean Energy Finance Corporation (CEFC) has invested $20m in the transaction, linked to solar PV and renewable energy assets. CEFC CEO Oliver Yates described the transaction as “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,” said Yates. “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.”

CEFC’s executive director, corporate and project finance, Richard Lovell, said the FlexiGroup green tranche is 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.

“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,” said Lovell. 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.”

It has also been reported that the FlexiGroup green tranche has achieved a relatively better price than the comparable uncertified tranche, despite the fact that the approach of the market to most green bond transactions has previously been to price them in line with similar non-green bonds issued from the same issuer, according to Lovell.

“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,” he said.