Sterling Bond: Orsted's £900m triple-tranche bond

IFR Awards 2019
3 min read
Eleanor Duncan

Wind in its sales

Danish offshore renewable power company Orsted brought the winds of change to the sterling market in May when it priced a £900m triple-tranche bond that was the largest ever green offering in the currency.

Orsted not only pushed the boundaries of the sterling green market, but also brought some very rare index-linked supply.

The transaction comprised £350m eight-year and £300m 14-year nominal tranches and a £250m 15-year CPI-linked bond.

That 15-year was the first true corporate widely syndicated CPI-linked transaction (Cambridge University had previously issued in the format).

The structure made sense for Orsted, which was bringing its first sterling bond since 2012, as its offshore wind farms business generates revenue that is linked to UK inflation so issuing inflation-linked debt served as a cashflow hedge for the company.

In addition, the 15-year tenor is the average contract life on Orsted's wind farms.

The proceeds will be allocated to Orsted's green growth ambitions towards 2025, including investments in the 1.386GW Hornsea 2 offshore wind farm.

One complicating factor for the inflation-linked tranche was that Orsted had two main indices to choose from: the retail price index and the consumer price index.

Leads Barclays, Goldman Sachs, Morgan Stanley and NatWest Markets put the question to investors during an intensive one-day roadshow in London.

One reference point for leads came from the Cambridge University deal in June 2018.

To that end, Orsted decided the CPI-linker was a better trade to set up access to the inflation-linked market in the future.

"Knowing the issuer would be happy to pivot to RPI or CPI was a good way to create price tension," said Daniel Shane, a managing director at Morgan Stanley.

Price progression for the triple-trancher was solid, with leads cutting spreads by 15bp on average on the nominal tranches, and 7bp on the CPI-linker to print at the tight end of guidance.

Orsted priced the 2027 tranche at 115bp over Gilts, the 2033 at plus 128bp and the 2034 CPI-linker at 238bp over the inflation-linked Gilt benchmark.

That tranche received a number of big orders from key investors, which was impressive given the limited number of buyers in the CPI-linked market, with the book reaching £325m at guidance.

Total orders across all the tranches was £2.2bn, with three investors placing total orders of £100m-plus.

"We captured the imagination of a shift to an ESG angle in sterling, and provided a cost-effective solution to Orsted," said Shane.

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