By Yoruk Bahceli
AMSTERDAM (Reuters) - Germany's debut green bond may finally provide an answer to the question that's been at the heart of the sustainable investing spree -- how much of a premium must investors pay to get hold of green securities?
The euro zone's largest economy raised 6.5 billion euros on Wednesday from the sale of its first 'green' bonds, a 10-year note, with proceeds earmarked for environmentally beneficial projects.
But what investors were waiting for was the price.
The deal launched with a -0.463% yield, which lead managers said meant a one basis point premium compared to a conventional equivalent. That difference represents what investors often call a "greenium" -- the price tag for a green issue.
Germany's green debt plan differs from peers such as France and the Netherlands in that each green bond sold will be matched with a conventional twin. Wednesday's deal for instance is twinned with a conventional issue sold in June.
And whenever an existing green bond is tapped, its twin will be upsized by the same amount.
The structure will show investors the exact cost of going green. Until now, gauging the green premium meant examining an issuer's regular yield curve to gauge where a hypothetical conventional bond identical to the green bond in question might trade.
"For the first time, we will be able to exactly see what the (green) premium looks like without having to do any maths, except for a simple 'minus' calculation, one yield minus the other," said Christoph Rieger, head of rates and credit research at Commerzbank in Frankfurt.
Green bonds usually trade with a lower yield than comparable conventional bonds, as dedicated funds chase a limited amount of bonds available, so investors have to pay a premium to buy them. It's an important consideration, given pressure on funds to invest sustainably and expectations of huge future growth in the still-tiny green debt market.
And all else equal, they offer issuers more attractive borrowing costs.
The premium implies Germany will save around 6 million euros over the lifetime of the bond, Mizuho analyst Peter McCallum calculates.
Johann Ple, portfolio manager at AXA Investment Managers, which runs 815 billion euros, says factors such as supply-demand balance, liquidity, maturity and coupon differences generally conflate comparisons between green and conventional bonds.
"In this case two similar bonds will help to clarify the "greenium"... as it will narrow the sources of differences and potentially justify that green bonds offer additional transparency and environmental benefits at no additional cost," he said