2022 saw quite a few green bond issuances — and they were heavily oversubscribed

Despite global bond market volatility, MENA green bonds and sukuk had a good year: MENA saw some major issuances of green and sustainability bonds and green sukuk in 2022, despite the region’s overall bond issuances remaining low. Investor appetite in green instruments was notably strong, and there are clear commitments from the region’s public and private sectors to raise more sustainable funding, head of MENA Debt Capital Markets at HSBC Khaled Darwish tells Enterprise Climate.

In a nutshell: “When it comes to the breadth of MENA ESG issuances and the sophistication of some of the structures we’ve seen, I would definitely term 2022 as a positive year for the ESG MENA market,” says Darwish. “And there’s more to come in 2023.”

MENA’s ESG issuances got off to a strong start this year, says Darwish. HSBC worked on a number of these transactions, including Saudi National Bank’s USD 750 mn debut ESG sukuk, Saudi’s Riyadh Bank USD 750 mn issuance of its first Tier 1 capital instrument as a sustainable sukuk, and Abu Dhabi’s Sweihan PV Power Company sale of amortizing green bonds — which raised almost USD 701 mn — for its Noor Abu Dhabi solar plant project. All of these transactions closed in the first six weeks of the year

Then market turmoil hit: Overall market issuances began dropping in February on the back of geopolitical developments, including Russia’s invasion of Ukraine, notes Darwish. In 1H 2022, issuance volumes in the GCC plummeted 80% y-o-y due to market volatility and rising interest rates, Reuters noted at the time. In the MENA bond market, overall issuances of bonds and sukuk stood at an estimated USD 60 bn in 2022 compared to some USD 122 bn in 2021, Darwish says. This correlates with the global sustainable bond market, which saw an estimated issuance of USD 775 bn in 2022 year-to-date, down from some USD 1.09 tn in 2021, according to HSBC estimates.

Some interesting MENA issuances still took place — including Majid Al Futtaim’s sale ofUSD 500 mn in perpetual green hybrid bonds in June — Darwish notes. Renewable energy provider Scatec issued a 19-year USD 334.5 mn green project bond in April in which the European Bank for Reconstruction and Development (EBRD) invested up to USD 100 mn. Morocco’s local rail operator Office National des Chemins de Fer du Maroc also issued the country’s first green infrastructure bond of MAD 1 bn (roughly USD 95 mn), in which the EBRD invested MAD 200 mn (roughly USD 19 mn) in July. These were among the key transactions undertaken by the EBRD in the Southern and Eastern Mediterranean region (SEMED) in 2022, EBRD Principal, Local Currency & Capital Markets Development Razvan Dumitrescu tells Enterprise Climate.

And towards the end of the year, MENA’s green finance was boosted by a landmark issuance: Abu Dhabi Commercial Bank raised USD 500 mn through its first-ever green bond sale in September.

This paved the way for PIF’s whopping USD 3 bn green bond debut: Saudi Arabia’s maiden green bond sale in October by the country’s sovereign wealth fund, the Public Investment Fund (PIF), was a major issuance in the market, says Darwish. PIF sold a total of USD 3 bn in green bonds in a three-tranche sale — which included the issuance of the world’s first 100-year green note.

And another sustainable sukuk sale: Dubai Islamic Bank sold USD 750 mn of its debut sustainable sukuks in November.

The ADCB, PIF and DIB issuances all saw very strong investor appetite: The ADCB issuance was 3.8x oversubscribed, drawing over USD 1.9 in orders. The PIF issuance appeared to be 6x oversubscribed, drawing in some USD 17.9 bn in orders, and the DIB issuance was a little over 2x oversubscribed, drawing more than USD 1.6 bn in orders. This was not unexpected, with Arqaam Capital Associate Director Noaman Khalidnoting before the PIF issuance that for European and US investors in particular, “MENA will give them new exposure from a portfolio diversification point of view.”

And throughout the year, HSBC also worked with multiple stakeholders — including Qatar’s Masraf al Rayan — on establishing sustainable finance frameworks, Darwish says. “In general, this has been our busiest year yet in terms of helping MENA issuers establish sustainable finance frameworks,” he adds. Across North Africa, the GCC, and the Levant, Darwish sees a broad group of clients and potential issuers who are working to establish sustainable financing frameworks — or who have at least started the internal discussions that are a precursor to this.