The strong demand for the recent Macquarie University sustainability bond is proof that higher education¡¯s environmental and social footprint is being rewarded, writes Andrew Duncan
Macquarie University is one of the largest universities in Australia, with more than 40,000 students from more than 120 countries. In 2010 it became the first Australian university to access the debt capital markets and through its latest A$250m (?195m) dual-tranche (10-year and 25-year bonds) funding exercise it has become a frontrunner in sustainable bond issuance within the sector.
On the back of a commitment to sustainability that has defined Macquarie University for decades, it decided to earmark the proceeds from this bond for green and social activities. Included in the former categorisation were green buildings, the installation of alternative energy facilities and the enhancement of water management, while the latter is set up to include the promotion of human rights, gender equality and global citizenship.
The combination of green and social projects generated strong interest from the traditional Australian dollar investor community and a high level of engagement from environmental, social and governance investors. There is no doubt that this had an impact on the quality and depth of the order book, which was more than two times oversubscribed. The dynamic helped Macquarie University price its 10-year bond at the joint-tightest Australian dollar spread in the sector.
Higher education has not made much use of the sustainability bond designation in the past, for a number of reasons. These range from a belief that green and social bonds are not needed to market what are commonly acknowledged to be some of the world¡¯s most sustainable institutions, through to the fact that there is still no tangible pricing benefit from issuing in this format. These beliefs continue to ring true, but what is clear is that the sustainable designation resulted in an impressive degree of investor engagement and offered a point of differentiation when comparing Macquarie University to its peers.
Another interesting feature of this transaction was the A$50m 25-year tranche that Macquarie University was able to issue alongside the 10-year piece. It was the joint-longest nominal tranche issued by a university in the Australian dollar market and the world¡¯s longest public sustainability bond tranche, highlighting once again that Macquarie University has a long-term commitment to sustainability. That longer end has not traditionally been accessible in the Australian dollar market, but a recent increase in demand from Asia has resulted in select insurance firms and pension funds bidding in that part of the curve. It is still a limited pool of liquidity and reserved for the higher end of the ratings scale, but for universities that want to secure competitive long-dated funding, it is a market to be considered as part of a wider menu of options.
Andrew Duncan is a managing director at HSBC and head of HSBC¡¯s Australia and New Zealand debt capital markets business. HSBC was a joint bookrunner on Macquarie University¡¯s recent sustainability bond issuance alongside National Australia Bank (NAB). HSBC¡¯s corporate financing and debt capital markets teams are positioned globally to support institutions with their financing requirements. ?
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