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Saudi Arabia Launches First $500 Million Tranche of Green Bonds

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Saudi Arabia Launches First $500 Million Tranche of Green Bonds

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  • The Public Investment Fund (PIF) is offering the world’s first 100-year dollar-denominated bonds
  • Nearly $18 billion in demand for the bonds
  • Saudi Arabia plans to increase renewable energy production to 50% of grid by 2030

Saudi Arabia’s sovereign wealth fund is selling a world-first dollar century green bond in its debut foray in to ethical debt as it seeks to burnish its environmental credentials.

The Public Investment Fund or PIF, as it is known, is offering debt in three tranches, according to people familiar with the matter, who aren’t authorized to speak publicly and asked not to be identified. 

PIF joins a host of oil-rich nations in raising green debt as they diversify sources of long-term funding and reinforce commitments to environmentally-friendly projects. But none has attempted a century-long dollar green debt, let alone in a debut sale. PIF is expected to raise $500 million from the 100-year notes, with the offering due to price later on Wednesday. 

According to Reuters, PIF has received $17.85 billion in demand for the green bonds.

Image: Riyadh. Source: Saudi Tourism Authority

“Notwithstanding the recent increase in rates, they remain low by historical levels. Locking in term funding by selling century bonds will help PIF efficiently finance their multi-decade economic vision,” said Doug Bitcon, the Dubai-based head of credit strategies at Rasmala Investment Bank. “Downside is that this paper will not have a natural regional bid and is likely to be quite volatile in times of market stress.”

The sale comes as Saudi Arabia — one of the world’s largest oil exporters — seeks to diversify away from crude sales. The kingdom pledged to neutralize greenhouse gas emissions within its borders by 2060, and has earmarked billions for carbon-capture technology as part of that goal. 

The PIF is a major backer of many of the country’s green ambitions and will use proceeds from the bond sale to finance, refinance or invest in one or more green projects like renewable energy, according to the bond prospectus. The PIF has been mandated to develop 70% of the kingdom’s renewable energy program and expects to make more than $10 billion of investment in green projects by 2026, according to the document. 

See related article: Saudi Public Investment Fund To Issue Green Bonds as Soon as This Week

“Issuing a century bond definitely raises a lot of attention, and is an interesting option for investors especially Taiwan lifers with longer time horizon,” said Sergey Dergachev, senior portfolio manager and head of emerging-market corporate debt at Union Investment Privatfonds GmbH in Frankfurt. “I am sure guidance will tighten somewhat.”

The kingdom plans to increase the mix of solar and wind energy in its local grid to 50% by 2030, with natural gas set to make up the rest. The country is also investing heavily in hydrogen, which is seen as crucial to its eventual shift away from oil and gas. 

Still, some observers are skeptical after the kingdom also committed to investing more in oil and gas production arguing that the world needs more hydrocarbons as it transitions to cleaner fuels. No other G-20 country emits as much carbon dioxide per capita as Saudi Arabia.

BNP Paribas SA, Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are the global coordinators on the sale. PIF is rated A1 by Moody’s Investors Service and A by Fitch, the sixth-highest investment-grade level — also the same grade it assigns for Saudi Arabia’s government.

Sources: Bloomberg, Reuters

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