Mexican development bank to issue first local green bonds

A Mexican development bank said on Monday it will issue up to 2 billion pesos (US$109 million) in green bonds, marking the country's first such issuance in the local market.

Nacional Financiera will sell the 7-year green bonds later this month to raise money for clean power generation projects in the states of Puebla and Nayarit. BBVA Bancomer and Banamex are underwriters for the August 31 sale.

Bonds are considered green when proceeds are used to finance certifiable environmentally friendly projects.

Green bonds have had a slow start in Latin America, where markets are highly illiquid and investors tend to be more cautious. But experts say a pledge by Mexico's government to reduce greenhouse gas emissions by 22 percent coupled with a recently passed law mandating more clean energy could spur the issuance of more than US$2 billion in green bonds over the next three years.

The United States issued US$10.5 billion in green bond sales last year, compared with US$600 million in Brazil. In a separate issuance by Nacional Financiera, Mexico raised US$500 million in a dollar-denominated green bond issuance last year in New York.

In order to convince more issuers and buyers of the benefits of green bonds in Mexico, the country will need a steady flow of successful offerings, said Eduardo Piquero, head of MEXICO2, a platform within the local stock exchange dedicated to green investing.

Mexican insurers, oft-cited as likely buyers of green bonds in the future, stayed away from the Nacional Financiera bond sale in New York, said Luis Fernando Rodríguez, a financial manager at Mexico's insurance association AMIS.

"There are still some doubts and certain things that must be clarified," Rodríguez said, adding there were questions around their relative benefits and the regulatory guidelines governing their use.

The bond was reported to be five times oversubscribed.

Globally, there are no mandatory criteria for labeling a green bond, although issuers submit annual reports on activities and receive a rating from a third party to vouch for a project's sustainability.

Sean Kidney, chief executive of the Climate Bond Initiative, which has developed an environmental standard for green bonds, said the fledgling market would likely take time to launch.

"You've got a long, grinding gestation period," said Kidney. "A few bonds come out here and there, and then you reach this magic tipping point, probably around US$10 billion, which is when everyone gets on the bandwagon."