Moody's: China Bonds Drive Q1 Issuance Record; Global Market Set for New Full-Year High

Moody's Investors Service says that global green bond issuance in Q1 2016 -- spurred by transactions originated by three China-based financial institutions -- reached $16.9 billion, nearly three times the volume seen in Q1 2015, and well above the $15.2 billion seen in Q4 2015. 

"Total green bond issuance now looks likely to exceed our initial projection of $50 billion in 2016 and could potentially reach $70 billion, well above last year's record of $42.4 billion, assuming volume is sustained throughout the rest of 2016," says Henry Shilling, a Moody's Senior Vice President. 

"The majority of Q1 issuance was earmarked for renewable energy and energy efficiency projects, a level of allocation which remains unchanged since Moody's began tracking use of proceeds in Q2 2015, but other eligible categories under the Green Bond Principles have begun to increase," adds Shilling. "For example, issuance designated for clean transportation and climate change adaptation rose as a proportion of the total." 

Moody's conclusions were contained in its just-released report on green bond issuance in Q1 2016, "Green Bonds: Global: China Bonds Drive Q1 Issuance Record; Global Market Set for New Full-Year High." 

More generally, China eclipsed other issuers in the first quarter as issuance by Chinese institutions reached $7.9 billion, accounting for nearly half of the quarter's total volume and placing the country as the top issuer geographically for the first time. 

In the case of the US market, while displaced as the top issuer, it placed second, coming to market with $3.4 billion, or 20% of global volume. 

At the lower end of the range, Canada accounted for 3.2% of global issuance. Two Canadian transactions appeared in the first quarter, with the Province of Ontario, the first and so far the only Canadian province to issue green bonds, issuing its second offering, this time upsized to about $536.5 million. But the recent change in government in Canada may help promote green bond issuance going forward. 

During the quarter, financial institutions -- excluding the development banks -- continued to issue the lion's share of green bonds in dollar terms, bringing to market $9.7 billion, or 57.2% of total issuance globally. 

All transactions fell within the investment-grade range, based on the Moody's credit ratings assigned to green bonds in Q1. Non-investment grade issuance fell to zero for the second consecutive quarter, potentially a fall-out from the financial distress experienced by three non-investment grade green bond issuers between late 2015 and Q1 2016. 

Moody's further expects the signing of the Paris Agreement to spur additional issuance. The agreement, which aims to keep global warming well below 2° C above pre-industrialized average levels and to pursue efforts to keep it from rising about 1.5°, is expected to be signed by at least 80 countries on April 22. 

Last month, Moody's also issued its Green Bonds Assessment (GBA). The methodology intends to provide an evaluation of the bond issuer's management, administration, allocation of proceeds to and reporting on environmental projects financed with the proceeds derived from green bond offerings.