Hungary-based developer Alfa Group has decided to cancel the bond auction within the Hungarian NKP framework in Q1 due to increased interest rates. As the main reason for bond issuance was the need for a financing development pipeline, an alternative source of financing with attractive commercial terms was considered better.
Alfa Group is committed to being climate-conscious. Accordingly, the company has worked out guidelines to ensure that the real estate investments are environmentally friendly: use of renewable energy and energy-saving solutions in the group's office buildings, warehouses, logistic centres and residential buildings built recently.
Alfa Group started the process of issuing a green bond, by developing a green bond framework, which got positive feedback from the auditors. A green bond is an investment in the future for the company, guaranteeing that only investment that has a positive impact on the environment or climate is financed. Alfa Group wants to offer the opportunity to investors to join in this positive change and protect the planet.
The process of issuing Alfa Group's green bond was started in 2020, but the costs of bond service became higher than expected due to the recent base interest rate increase by the National Bank of Hungary. In comparison to the beginning of the process, the coupon that needs to be offered to investors was doubled. Additionally, the required amortization seriously reduced the attractiveness of this source of financing, from the perspective of the risk profile offered.
Considering the higher uncertainty in the market the company agreed internally to take a more conservative stance to focus on the completion of the prepared pipeline projects.
In line with the original business plan for 2022, Alfa Group's "2913 uptown" project in Kassák Street in the 13th district is completed, and all units are sold and to be handed over to clients. The 1st phase of the new residential development in Haller Street, in the 9th district is under construction, funded by Bank Intesa. The Group managed to increase the percentage of sold apartments to 45% with above-budgeted prices. The 2nd and 3rd phases of this development are planned to become part of AEH consolidation, and Alfa Group intends to proceed with the construction of the two schemes.
While Alfa Group was working on its ongoing developments, received new offers and closed the negotiations over bank financing, offered in the structure of project finance for the financing of the development pipeline, by local and international banks, with the commercial parameters better than possible to be achieved from bond issuance.
As the main reason for bond issuance was the need for a financing development pipeline, an alternative source of financing with attractive commercial terms was considered better. The Group decided to cancel the bond auction within the Hungarian NKP framework in Q1 due to increased interest rates.
Alfa Group is still committed to building a better future and continues to work on its green initiative with the previously founded methodology, audited by KPMG. Of the group's residential developments, one in the 13th district has been finished and handed over to buyers, while the first phase of the more than 600 flats containing development in the 9th district is underway. Both developments use renewable geothermal energy and many innovative solutions to realise the company's climate-conscious aspiration.
Alfa Group is ready to re-open the green bond issuance in the future in case of a better market environment.
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