EMEA Structured Equity Issue: EDF’s €2.4bn four-year green convertible bond

IFR Awards 2020
3 min read
Robert Venes

In the spotlight

When French power producer EDF Group raised €2.57bn through the issue of four-year green convertible bonds in early September it put the structured equity market centre stage by breaking multiple records.

As the second green CB in Europe it also built momentum for the structure when there had been fewer than 10 green CBs globally at an average size of around US$200m. In its wake came green CBs from Falck (€200m), Audax Renovables (€125m) and Voltalia (€200m).

While the deal was the largest green bond from a European corporate in any format, its significance was greater to the world of equity-linked, marking only iterative progress for ESG financings.

The deal had a par value of €2.4bn, but raised the higher figure thanks to a premium price. Issued at 107%, with redemption at 100% and no coupon, the bonds carried the lowest negative yield to maturity ever achieved on a convertible at negative 1.68%. It printed alongside €2.1bn of conventional hybrids.

EDF’s CB was the biggest non-mandatory in Europe since Siemens’ €2.5bn issue in 2003, by face value, and the largest by proceeds since a €3.5bn deal from France Telecom in 2001.

The French state made the deal more digestible – even creating scarcity – by putting in an order for 40% of the bonds (€960m). The state owns 83.6% of EDF and pre-sounding other investors ensured there was plenty of interest ahead of launch. The final book exceeded €5bn, and outrights were allocated 54% of the bonds, excluding the state participation.

“It ticks all the boxes,” said Andreas Bernstorff, head of EMEA ECM at bookrunner BNP Paribas. “A large green convertible bond and a first-time issuer that benefits from the backing of the French state and a share price rally impacting implied vol. Investors made a fortune.”

The underlying stock was trading above the conversion price – a 32.5% premium at issue – after two months of the bond’s four-year life, and by year-end bondholders were sitting on a 40% profit.

“This was about creating an instrument that costs nothing, allowing for investment into ESG themes and being rewarded by a strengthening balance sheet,” said Pierre-Alexis Renaud, head of EMEA equity-linked at Morgan Stanley, another bookrunner. “If it hadn’t been a green CB, there is no way the board or the French state would have allowed them to issue a potentially dilutive instrument.”

Other bookrunners were Bank of America, Credit Agricole, Goldman Sachs and JP Morgan. BNPP was structuring adviser.

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