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TCorp and NAB – Australian green bond partners

Learn how TCorp was supported by NAB to create Australia’s biggest ever green bond | View transcript


Australia’s biggest ever green bond is helping to fund sustainable transport and infrastructure for the people of New South Wales.

Faced with the need to borrow $6.6 billion on behalf of the New South Wales government this financial year, and more funds in coming years, TCorp wasn’t about to rest on its laurels.

Fiona Trigona, TCorp’s Acting General Manager, Financial Markets, says the state funding authority knew it needed to diversify its investor base to ensure that the state’s needs are met well into the future.

“We had made an assessment of all the investors we had within our bonds, and we really did identify a concentration risk. For us that meant we needed to embark on a new way of reaching out to a broader range of investors,” Trigona says.

Meanwhile, as Trigona and her colleagues met with investors on global roadshows for TCorp’s benchmark bond program, there was one question they were repeatedly asked: ‘Why haven’t you issued a green bond?’

“The number of ESG (Environmental, Social and Governance) mandates is growing daily and a lot of our investors are now at the point where they have ESG themes running through their own investments. So we knew it was definitely a sector that we needed to pursue.” says Trigona.

Record infrastructure spend

The New South Wales government is delivering the biggest infrastructure program in Australian history, spending around $90 billion on infrastructure over the next four years alone, including rail transport and water infrastructure.

Katherine Palmer, TCorp’s Acting Head of Funding & Balance Sheet, says the size of the government’s infrastructure program, and its well defined links with sustainable outcomes, made it possible to identify several large scale assets that fit the criteria for a green bond.

TCorp earmarked three assets to be partly or fully funded by the green bond, including the Sydney Metro North West rail project, which will deliver 34 kilometres of electrified passenger rail line, eight new metro stations, and will have 100% of the energy used in the operating stage offset by renewable energy. The other two assets are the Newcastle Light Rail and the Lower South Creek Treatment Program, a water recycling and waste water treatment facility in Sydney’s north-west.

“The rail projects are part of the modal shift—people moving from cars to electrified rail as their form of transport—and the water project is about water quality, capacity and reliability as well as energy efficiency for the people of the region,” says Palmer.

Blockbuster deal

Normally when TCorp issues a new benchmark bond, the size of the issue is around $750 million to $1 billion, however, with the green bond, it became evident very early on that this deal was going to be larger.

“Once we did launch the deal, we had immediate investor uptake. We were pleasantly surprised at how large the investor interest was at the very start. We had 57 accounts in our bond whereas normally we have around 35. We wanted to make sure that most investors got their desired allocation where possible. We knew that we still had funding needs for the remainder of the year and wanted to support the demand from our investor base – particularly the brand new investors,” says Trigona.

With the order book closing in excess of $2.5 billion, TCorp issued $1.8 billion of green bonds, more than twice the size of the previous largest A$ green bond transaction, a $750 million issue from Queensland Treasury Corp (QTC), and 15 new investors took part in the deal.

The deal also priced at a competitive rate for TCorp. Trigona says issues of new bonds from TCorp normally price at a premium to its funding curve, but this one priced in line with the curve.

Game changer for the market

NAB’s Head of Sustainable Finance, Corporate and Institutional Banking, David Jenkins, says the TCorp deal takes the market to a new level and proves there are deep pools of liquidity seeking credible and well-structured sustainable fixed income drawn from Australia.

“This deal was a gamechanger for the Australian sustainable bond market both for the scale but also the breadth of demand that we attracted to the deal from both traditional fixed income investors and new investors seeking to invest with purpose both domestically and offshore,” he says.

Before launching the deal, TCorp established a program that allows it to issue not just green bonds, but also social bonds and sustainability bonds, a relatively new format of bond that finances both green and social projects that deliver to both societal and environmental outcomes and is attracting rising interest from investors globally.

TCorp didn’t want to limit itself to green bonds, given the state is also building social infrastructure such as affordable housing, schools and hospitals, which could meet the eligibility criteria for financing through social or sustainability bonds.

“The NSW Sustainability Bond Program was unique in being the first in Australia to have the flexibility to issue in any of the three formats,” says Jenkins. “It allows TCorp to target the potentially different types of investors across each issuance format, especially given the strong pipeline of social infrastructure being developed in New South Wales.”

Close relationship

NAB has had a long relationship with TCorp, and is a key member of the panel of banks that distribute TCorp’s bonds to investors. Over three years ago, Jenkins approached Palmer with the idea of issuing a TCorp green bond. Back then, the market was in its infancy, and he has worked closely with Trigona and Palmer, providing updates on the development of the market, and keeping them abreast of market opportunities.

“TCorp valued David's knowledge in this area and he assisted us in our decision-making throughout the project,” says Trigona.

“We also wanted to make sure that the program really was one that set us up for the future and having David's experience across green, social and sustainability bonds was incredibly supportive of our decision to proceed with a sustainability bond program.”

After TCorp drafted the program, Jenkins provided feedback on the draft based on his knowledge of market standards and frameworks. When TCorp was ready to go ahead with a green bond issue, it appointed NAB as sustainability structuring advisor and arranger, and as joint lead manager for the transaction, after a formal request for proposal (RFP) process.

“NAB has been specialising in this space for some time and has a high level of expertise. They have been appointed as structuring advisor on a number of significant deals that have been launched in the Australian market, so we were really pleased to work with NAB on this deal,” says Palmer.

Jenkins provided advice on launching the deal to investors and introduced Palmer and Trigona to several new investors in the ESG space. “He gave us a lot of clarity on who the investors were, and how we should approach them in terms of the information that we were presenting,” says Trigona.

A more sustainable future

For NAB the deal was another opportunity to help a client achieve its business goals while also addressing key societal and environmental challenges. “There’s a strong desire at NAB to support our customers and Australia in moving forward as we transition to a low-carbon environment globally,” says Jenkins.

For the New South Wales government, the sustainability bond program showcases the work the state is doing to address environmental and social issues and transition to a more climate resilient economy, and provides a mechanism for capital to flow more directly to projects which deliver positive environmental and social outcomes.

“For me the most satisfying thing about being involved in this deal was being able to make a difference, being able to work on a use-of-proceeds bond where we could actually match up for the investors where their money was going to, what is the impact of that investment, and what are the outcomes from an environmental and social perspective,” says Palmer.

Trigona says the deal has achieved its key objective of ensuring the long term viability of TCorp’s overall funding strategy. “We do feel now that we have made the program more sustainable in terms of diversification of the investor base. That means there are different types of investors that might be attracted to the TCorp funding model and therefore will be able to support our funding going forward. We are very, very pleased with the outcome.”

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