Part of the attraction for investors – particularly as global interest rates decline and investors look for yield with acceptable risk characteristics – is the social bond sector in general offers portfolio diversity.
Whether it be housing bonds, social impact bonds, wellbeing bonds or others, more specialised segments are developing in capital markets.
Social (and also wellbeing) bonds are structured so the proceeds fund a social purpose. In this case, owning a NHFIC or Housing New Zealand bond is an indirect investment into Australia and New Zealand’s social and affordable housing sector.
The return is based on the credit worthiness of the borrower who is responsible for directing the financing to social causes, with an obligation to report accordingly.
Katharine Tapley, Head of Sustainable Finance at ANZ, believes the well-received issues reflect the increasing sophistication of capital markets in Australia.
For ANZ, these were the first times issuing a social bond in different segments, across different geographies. The bonds set benchmarks as the first ever capital markets issue for NHFIC and the first social bond for Housing New Zealand.
“It really showed (a concept like) the green bond market can apply to a broader class of assets, into social assets for example,” Tapley says.
“It was also unique because NHFIC is a legislated, AAA rated government guaranteed entity that was brand new into the capital markets generally. A lot of interest was attracted into the transaction because of the nature of the issuers, as well as the format being a social bond.”
NHFIC chief executive Nathan Dal Bon says working in partnership with other stakeholders is key to the solution for social housing.
“We need to work with others to ensure we develop their responses to make sustained inroads into the shortage of housing in Australia,” he says.
“In particular, we need to work with private financiers who are already playing or working in conjunction with the Community Housing providers (CHP) in this space.”
According to S&P, the expansion of social and affordable housing remains a key priority for the New Zealand government. The agency noted plans to increase the stock of social housing by a net 6,400 properties over the four years to June 2022. The net increase in the 2018-2019 year was approximately 1,200.
S&P says: “to finance its pipeline of new housing construction, HNZ issues New Zealand dollar bonds to wholesale investors. In September 2019, it issued $NZ600 million of fixed-rate medium-term 'wellbeing bonds,' a type of sustainability bond. This followed an earlier issuance of $NZ500 million in April 2019, and brings HNZ's total outstanding commercial term debt to $NZ1.9 billion.”