The growth of sustainability-linked loan financing bonds has taken a step forward with a Middle East bank becoming one of the ESG format’s first adopters.

Emirates NBD has been marketing its new SLLB framework to investors on Wednesday and Thursday and said it is the first to be fully aligned with new International Capital Market Association/Loan Market Association guidelines.

While the bank would not comment on its issuance plans, a source with knowledge of them said it is gauging market appetite for SLLB issuance through its non-deal roadshow. "Being able to issue a bond like this would bring the bank to the forefront of the market," they said.

ENBD’s move – which includes face-to-face presentations to potential buyers in London, as well as virtual meetings – comes with momentum rising around SLLBs.

Soon after publication of the ICMA/LMA guidelines in June, Credit Agricole became the first bank to follow Nordea’s lead by issuing the use-of-proceeds instrument, which is based on drawn SLLs.

The French lender’s corporate and investment bank issued a ¥3bn (US$21m) private placement that was bought by Japan’s Sumitomo Life.

Nordea last week issued nearly US$500m-equivalent of the product in Norwegian kroner and Swedish kronor, having exported it from these regional currencies to euros in September 2023.

The largest Nordic bank introduced SLLBs two years ago as a use-of-proceeds instrument that, while not formally green, can give investors exposure to banks’ growing portfolios of SLLs.

These typically include climate targets. All loans in Nordea’s updated €2.2bn portfolio carry at least one climate-related target.

Emirates NBD Capital and HSBC are joint sustainability structuring agents for the new framework and organised the roadshow.

ISS has issued a second-party opinion on the framework. It said ENDB clearly describes its key impact objectives and rationale for issuing SLLBs and views the majority of eligible SLLs’ key performance indicators and sustainability targets to be aligned with the bank’s impact objectives. It confirmed that all eligible SLLs comply with the LMA’s Sustainability-Linked Loan Principles at signing.

ISS also said it is unclear how the three unidentified borrowers in ENBD's initial pool of eligible SLLs – two real estate companies and one from the services sector – will manage their ESG risks, calling this area of their risk management “poor”. But it rated the ambition and materiality of their targets and KPIs at the highest "robust" grade in one case and the next highest "good" in another.

The source also said that peer agencies MSCI and Sustainalytics award higher ESG ratings to these borrowers than ISS.

ENBD has committed to publish an annual SLL funding report throughout the framework’s life. This will cover a breakdown of the eligible SLL portfolio, including volume allocated to each of the framework’s green and social “impact objectives”, as well as borrowers’ achievement of their loans’ embedded sustainability targets.

Last year ENBD launched a sustainable finance framework under which it can issue green, social and/or sustainable debt instruments, including sharia-compliant financing or investments. HSBC and ING were sustainability structuring agents, while ISS was the SPO provider.

The bank's 99.9%-owned Islamic financier issued a US$750m debut sustainability sukuk in May.

Source: IFR Emirates NBD adds impetus to SLL bond push | IFR (ifre.com)