India-based private lender Axis Bank plans to raise at least $500m through green bonds from the international market, the first such issue for the private lender.
India’s third largest private bank would be the fifth issuer of green bonds in India since Yes Bank issued the first such bond in February 2015 to raise INR 1,000 crore. Other lenders that have raised green bonds include IDBI Bank and Exim Bank.
According to bankers involved in the issuance, initial pricing guidance for the Axis Bank’s issue is 175 basis points over the US Treasury note. The bonds would be priced late evening on Monday after assessing demand from US investors.
Green bonds are like any other debt instrument but the funds raised from such a bond sale are used exclusively for renewable energy projects. With the Indian government and private sector increasingly focusing on renewable energy projects, the demand for such funds is expected to rise over time.
India has a target of installing 100GW of solar power capacity and 60GW of wind power capacity by 2022. The total installed capacity of renewable energy stands at 30GW, of which wind energy projects account for 24GW, solar contributes 5GW and the rest comes from smaller sources, such as biomass.
An Indian private bank may pay at least 190 bps above US Treasury notes to raise capital through medium-term notes (MTN). But the bank can raise funds through green bonds at 15-20 bps lower.
Separately, another state-owned Indian lender, IDBI Bank, was also looking to issue a second set of green bonds. The funds raised will be part of $2 billion MTN programme.
Fitch Ratings has assigned a rating of BBB- with a stable outlook to the proposed $500m bond issue by Axis Bank.
The tenor is likely to be around five years, and the notes are to be issued by Axis Bank’s Dubai International Financial Centre branch.