By Tom Revell
LONDON, Nov 8 (IFR) - Royal Bank of Scotland Group sold its first social bond on Friday, a €750m holdco senior offering aimed at supporting job creation and retention in some of the most deprived areas of the UK.
Leads ABN AMRO, Credit Agricole, ING, NatWest Markets and Nomura opened books for the six-year non-call five issue with initial price thoughts of mid-swaps plus 120bp area.
Guidance was set at 105bp (+/-5bp WPIR) before the spread was fixed at 100bp and the size at €750m, with books closing above €2bn.
Demand was driven by strong interest from specialist SRI accounts but also boosted by the scarcity of euro-denominated senior paper from UK banks this year.
Bankers said the deal was priced roughly flat to fair value, based on RBS' curve.
"In a slightly shakier market where premiums have been on the rise [the social element] definitely played in the issuer's favour," said a syndicate banker at one of the leads.
The deal, which is expected to be rated Baa2/BBB/A, is the first social bond issued under ICMA's Social Bond Principles (SBPs) by a UK lender. It inaugurates RBS' newly unveiled green, social and sustainability bond framework.
“It’s important that we have gone down this route, this is aligned to our overall commitment to act in a more sustainable way with customers and reflects our ambition to the environment and society as a whole,” a banker close to the deal said.
The proceeds of the bond will be allocated to SMEs in economically underperforming regions of the UK.
To create the pool of loans, RBS reviewed its book of business loans to SMEs, which totaled £26.4bn in the first quarter of this year. It then applied filters to screen out sectors not appropriate for social bonds, which reduced the pool of 166,000 loans to £8.5bn.
The postcode data of each of the SMEs in the £8.5bn pool was then mapped to local authority units and was also analysed by gross value add per capita.
It was then ranked by the percentage of people claiming unemployment benefit, and RBS used the lowest 30% of the pool (totaling £2.5bn) to identify the SME’s in the areas of the UK with highest unemployment to issue the bond.
The deal took 12 months to structure and also required intensive work to create the systems that allowed RBS to pull the data into a report that allows it to create and monitor the pool of loans on an ongoing basis.
RBS' new chief executive Alison Rose said the social bond demonstrates the bank's commitment to addressing regional inequality and promoting economic growth.
"This is an important milestone for RBS as we build a more sustainable, purpose-led bank that champions the communities we serve and helps them to thrive," she said.
The bank will publish impact reports detailing the numbers of jobs created and retained as a result of its lending, using government data from the UK’s Office of National Statistics.
The uptake of social, green or sustainable bond issuance has been relatively slow in the UK banking sector, but RBS is not the first issuer.
Lloyds Bank sold an ESG bond in 2015 that raised financing for UK SMEs and businesses with a social or environmental impact, but that deal pre-dated the SBPs.
Lloyds has since converted its programme to a Sustainable Bond Programme aligned with the SBPs and other market standards, though it has to issue off the revamped framework.
Standard Chartered, meanwhile, sold a sustainable bond in June raising financing for projects in developing countries.
(Reporting by Tom Revell, editing by Helene Durand, Alex Chambers)