The COVID-9 pandemic has spurred the growth of social bonds as governments, multi-lateral organisations and the private sector raise capital to manage the health and socio-economic impact of the crisis.
According to ratings agency S&P Global Ratings social bonds will emerge as the fastest growing segment of the sustainable debt market in 2020. The anticipated growth of social bonds is in sharp contrast to issuance in the rest of the global fixed income market which S&P expects to decline.
“The total volume of social bonds issued in the first half of 2020 alone has hit around $US38 billion.”
Tessa Dann, ANZ’s director of Sustainable Finance, says the attraction is “social bonds address a particular issue that affects a community and are tied to a purpose to achieve positive socio-economic outcomes”.
The total volume of social bonds issued in the first half of 2020 alone has hit around $US38 billion, dwarfing the $US18.5 billion in issuance for all of 2019, according to data from Bloomberg New Energy Finance.
“The impact of the COVID-19 pandemic has accelerated the use of social bonds as a format for investors to direct capital towards helping support communities in responding to the fallout,” Dann says.
The success of a recent social bond from Australia’s National Housing Finance and Investment Corporation (NHFIC) provides evidence of growing interest, in this case in the community housing sector.
Community housing is quickly developing as a standalone asset class and capital markets are playing a key role channelling capital into the sector.
NHFIC is an independent Australian government entity that provides loans to eligible community housing providers to increase the supply of social and affordable housing.
The 12-year bond – at $A562 million the largest by an Australian issuer – was oversubscribed by around three times by both domestic and international investors.
“The NHFIC bonds are further evidence of Australia’s community housing sector emerging as a new investment asset class,” NHFIC CEO Nathan Dal Bon said in a release.
The first loan to a Tasmanian community housing provider (CHP) forms part of the latest bond, with Housing Choices Tasmania to use the funding for 192 existing and new social and affordable homes.
Other CHP loans supported by the bond include Argyle Community Housing (NSW), BaptistCare (NSW & ACT) (NSW), Bridge Housing (NSW), Common Equity Housing Ltd (Victoria), Junction (SA), Mission Australia Housing (NSW), Pacific Link Housing (NSW), SGCH Sustainability (NSW), and Women’s Housing Limited (Victoria).
“There is good investor appetite for quality assets that fund the community housing sector helping vulnerable Australians stay in accommodation,” says Andrew Brown, Director of Debt Capital Markets at ANZ. ANZ was joint-lead manager with UBS and Westpac for the bond.
The success of the latest NHFIC social bond shows the financial sector has an important role to play in mobilising capital to fund community housing, according to Caryn Kakas, Head of Housing Strategy at ANZ.
“The challenge to improving meaningful supply of affordable housing requires a collaborative approach from the public, private and non-profit sectors,” she says.
ANZ is committed to increasing the availability of suitable and affordable housing options for all Australians and New Zealanders, including the supply of homes to buy and rent, as well as access to safe accommodation.
The bank has a $A50 billion commitment by 2025 to fund and facilitate sustainable solutions for customers including initiatives to help improve environmental sustainability, increase access to affordable housing and promote financial wellbeing.
Emerging asset class
The latest bond by NHFIC is its third in less than 18 months making the agency the largest issuer of social bonds in Australia with around $A1.2 billion outstanding.
The strong reception from investors shows the sector emerging as a standalone asset class.
Proceeds from the 12-year social bond will go towards 10 community housing providers across New South Wales, South Australia, Tasmania and Victoria to develop 2,742 properties including 781 new dwellings.
Sharon Klyne is Associate Director, Communications at ANZ Institutional
This article was originally published on ANZ’s Institutional website
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.