Sewage Flowing in London’s River Thames Draws Green Bond Demand

(Bloomberg) -- The green bond market just got one of its biggest challenges yet -- cleaning up London's River Thames.

A sale of the notes aims to help to fund upgrades to the city's Victorian-era sewers, as population growth in London heaps increasing pressure on them. Designed to serve about 4 million people, the sewers instead handle waste from more than double that number, leading to multiple sewage overflows every year.

Bazalgette Finance Plc sold 300 million pounds ($400 million) of green bonds Thursday to fund construction of a 25-kilometer tunnel to prevent millions of tonnes of sewage overflowing into the river. The 12-year notes were priced at 130 basis points above U.K. gilts, drawing investor orders of more than four times the amount on offer, according to a person with knowledge of the sale, who asked not to be named.

The bond proceeds will be given to Bazalgette Tunnel Ltd for the ongoing construction of the Thames Tideway Tunnel, which is expected to be completed in 2023, according to the Tideway website. The 66 meter-deep tunnel is more than seven meters wide and will cost an estimated 4.2 billion pounds ($5.6 billion) at completion, according to an investor presentation seen by Bloomberg News.

“We are really pleased with the response from investors to this issuance,” said Neville Simms, Tideway's chairman. “Tideway's green and sustainable debt issuance seeks to demonstrate to investors that in addition to our core purpose to reduce pollution in the river, we also hope to reconnect London, and Londoners, with the river.”

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The sale was Europe's first green bond deal since Feb. 16 and one of the the first non-financial offerings since Feb. 23, according to data compiled by Bloomberg. Marketwide sales of publicly-syndicated debt have stalled in recent days amid widespread global volatility triggered by Russia's invasion of Ukraine.

All of the revenues financing the construction of the tunnel are from green assets, according to the investor presentation. Lloyds Banking Group Plc, Royal Bank of Canada and SMBC Nikko Securities Inc. are arranging Bazalgette Finance's sale.