Non-bank heads towards green mortgages

by Rebecca Pike04 Dec 2018

A non-bank lender has become the first in Australia to issue a Green Bond linked to residential mortgages.

Pepper Money announced it completed the issuance with separate Eur€110million and A$75million tranches, totalling $254m, of residential mortgage backed securities backed by energy-efficient homes.

Mortgages included in the Green Bond tranches were over residential properties that complied with Pepper’s definition of green mortgages as set out in its Green Bond Framework.

The definition is linked to compliance with energy-efficiency ratings issued by state and territory governments in Australia.

The Green Bond issuance was part of a $1.25b issue of Australian mortgage-backed bonds completed on Friday, Pepper’s largest-ever securitisation transaction.

Pepper Group has completed over $4.4b in public securitisations in 2018, comprising both prime and nonconforming issuances.

According to Pepper, the Green Bond tranche attracted strong interest from both onshore and offshore institutional investors seeking high-quality RMBS assets that met their guidelines or mandates for socially responsible or sustainable investment.

Pepper Group’s Australian CEO, Mario Rehayem, said the success of this month’s green bond issuance demonstrated the strength of international investor appetite for high-quality RMBS assets from Australia.

He added, “Some of the investors in the issue were making their first investment in Australia, with a number of investors holding an ESG or SRI mandate.

“Looking ahead, we see strong potential for securitising green mortgages that are backed by energy-efficient homes.

“Most homes today are designed for a reduced carbon footprint and we sense a growing appetite among borrowers for loan products aligned to these same principles. Green loans will in turn support our future issuance of green bonds, which are an expanding asset class globally.

“Pepper continues to support the communities in which we operate by extending home loans to more Australians. The innovative green mortgage scheme we have planned will help Australians achieve both a financial goal and an energy-efficient footprint.”

The Green Bond issuance is the first step toward Pepper’s launch next year of a Green Mortgage scheme, under which it will offer incentives to borrowers taking out loans secured by homes that meet the energy-efficiency criteria in its Green Bond Framework.

Pepper expects to announce details of its Green Mortgage scheme early next year.

Pepper plans to incorporate Green Bond tranches in all future Pepper Residential Securities transactions (Pepper’s RMBS program).