Cash flood, not green dreams, behind slump in oil bond sales

LONDON: Banks earned record first-quarter fees from arranging green bond deals, while oil, gas and coal companies issued the lowest amount of debt in a decade.

But all isn’t as it seems. The slump in fossil-fuel issuance isn’t necessarily a sign bankers have woken up to the seriousness of climate change. Instead, it reflects the fact that energy companies haven’t had to tap the bond markets for cash given the surge in commodity prices.

With oil above US$100 (RM422) a barrel and likely to stay there for the foreseeable future, “the time of borrowing to pay dividends and buy back shares is over,” said Fernando Valle, a senior oil and gas analyst at Bloomberg Intelligence.

Fossil-fuel companies raised US$37.6bil (RM158.5bil) selling bonds in the first three months of the year, down from US$79.4bil (RM335bil) in the same year-earlier period when crude prices were closer to US$61 (RM257) a barrel, data compiled by Bloomberg show.Crude markets have been so robust that “oil companies have little need to issue bonds as they have so much cash and free cash flow,” said Paul Vickars, a senior credit analyst at Bloomberg Intelligence.

“In fact, they have been redeeming bonds in cash rather than replacing them with new ones, and even buying some bonds back early.”

Together, BP Plc, Chevron Corp. and Shell Plc repurchased about US$10bil (RM42bil) of bonds ahead of schedule in the past 12 months, he said.

Valero Energy Corp and Phillips 66 are doing the same, and Exxon Mobil Corp is committed to reducing its debt, Valle said.

Still, it remains true that green bonds, and green bond fees, are on the upswing. Historically, banks have made much more money providing underwriting services and extending loans to the fossil-fuel industry than they have arranging green-related bonds and loans. That started to change last year.

The question remains, however, about just how committed banks are to net-zero emissions pledges. The world’s leading climate finance experts and economists warned this week that too much money continues to pour into fossil fuels and too little is channelled to clean energy, putting the planet on track to blow past its limit to avoid catastrophic global warming.

Led by JPMorgan Chase & Co, BNP Paribas SA and Bank of America Corp, bankers earned about US$695mil (RM2.9bil) in the first quarter issuing green bonds, up from closer to US$140mil (RM590mil) as recently as five years ago, Bloomberg data showed.

By contrast, they pocketed about US$319mil (RM1.35bil) selling fossil-fuel bonds, down from the roughly US$638mil (RM2.6bil) earned in the first three months of last year.

Companies, governments and other organisations have raised more than US$116bil (RM489bil) selling green bonds so far in 2022 after issuing about US$515bil (RM2.17 trillion) during all of last year. The first-quarter increase occurred during a period when the Bloomberg Barclays US Green Bond Index – which tracks corporate green bonds – lost 6.95%.“The growing need for renewable energy sources and other environmental projects makes the green bond market ripe for continued growth, having already doubled between 2020 and 2021,” said Mallory Rutigliano, an analyst at BloombergNEF, who tracks green and sustainable finance.

At the same time, banks are under pressure to decarbonise their portfolios and set internal policies to exit coal and other pollutive activities, and they may decide to take on more green instruments to satisfy their climate-financing pledges, she said. — Bloomberg

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