By Virginia Furness
LONDON (Reuters) - The Netherlands became on Tuesday the first AAA-rated sovereign to offer investors a green bond, saying it would give preference to funds that prove their own environmentally friendly credentials.
The government said it aimed to raise up to 6 billion euros (£5.2 billion) from the issue, although bankers said order books on the 20-year euro-denominated bond had climbed past 20 billion euros.
The Netherlands follows European Union peers Poland, France, Belgium and Ireland which have all sold green bonds.
The initial price guidance was put in a range of 18 to 21 basis points (bps) over a benchmark German bond. The spread was finally set at 18 bps over, banking sources told Reuters.
The bond was offered at an auction in which there was no underwriting role for primary dealers and client bids were placed directly with the Dutch debt agency. Other euro zone sovereigns have issued green bonds via syndication.
Investors and bankers said it was the first time they had seen the issuer, in this case the Dutch debt agency DTSA, explicitly prioritising investors with green credentials and offering them a more favourable allocation.
"That's an interesting step," said Ross Hutchison, a bond fund manager, at Aberdeen Standard Investments in Edinburgh.
Investors who proved their green credentials will be given an additional allocation of up to 10%, which a banker said meant that a green investor placing an order for 50 million euros could expect to be allocated up to 55 million euros.
With increasing regulatory scrutiny over the origin of funds, issuers are taking provisions to know their end clients.
"A lot of people are now much more concerned about the sustainability aspect," said Roman Schmidt, divisional board member capital markets at Commerzbank (DE:CBKG), adding that regulators were introducing stricter know-your-client (KYC) rules.
The increased scrutiny works both ways with portfolio managers also engaging in regular dialogue with issuers.
"As a portfolio manager, I meet all the issuers I have in my portfolio which is not the case in traditional credit funds," Alban de Fay, a credit portfolio manager at Amundi Asset Management, told a conference in Stockholm last week.
Green bonds make up a small fraction of the overall bond market, but interest has soared as banks, sovereigns and companies look to tap into increasing investor appetite.
Hong Kong was seeking on Tuesday to raise up to $1 billion in five-year green bonds as the former British colony aims to establish itself as a centre for green finance.
(This story corrects reference to European Union not euro zone in paragraph 3)