First social hybrid leads banner day for ESG

6 min read
EMEA
Ed Clark

EDF broke new ground by becoming the first corporate to issue a social hybrid bond in euros on a day that saw five ESG transactions in Europe's high-grade markets across two currencies and four formats.

The rush of European corporate ESG deals that hit the market, as well the overall pick-up in supply of late, has been well supported by not only a strong technical backdrop, but also the number of different financing tools that corporates now find open to them.

“It’s a good environment to issue into still,” said one syndicate banker. “But corporates have more time to focus on their sustainable projects and if you look at what is getting issued, it’s a wide variety of products, and the fact that more products are available means that more issuers can issue.”

That was certainly the case on Wednesday as corporates sold green, social, sustainability and KPI-linked bonds in senior and subordinated structures.

French utility EDF (A3/BBB+/A-) led the way, issuing its first social bond. It chose to do so through a hybrid, a market in which it is well-known to investors.

The company was able to raise €1.25bn through a perpetual non-call seven note at a yield of 2.75% off of a book of over €2.4bn. Bankers said that, as with green bonds, the social label helped draw in a wider pool of accounts than for a conventional deal.

Still, based on leads’ estimates, EDF paid a 25bp premium in yield terms, perhaps underlining the greater sensitivity around hybrids following the difficulties that telecoms and satellite network provider SES experienced last week. It was unable to move pricing on its deal.

EDF faced less price sensitivity with active bookrunners, Credit Agricole, ING, IMI-Intesa Sanpaolo, JP Morgan, Morgan Stanley and NatWest Markets, tightening by 25bp from initial levels.

The utility, which also issues green bonds, decided not to combine its green and social frameworks into one sustainable finance framework. Instead, it has two distinct and separate frameworks.

"EDF have a sizeable investments programme and a well-established SME supply chain so they could afford to have a separate framework,” said Arthur Krebbers, head of sustainable finance, corporates at NatWest Markets.

“A helpful feature is the granularity of reporting. It's not just about the number of SMEs supported, but also the regional and employment impact."

Proceeds from its social bonds will finance or refinance capital expenditure contracted with SMEs.

“The social objective of such projects is to support the SMEs that make up a key part of EDF’s industrial fabric and which provide employment opportunities in the territories where EDF is active,” according to the framework.

The new issue will add to EDF's layer of capital, although a portion of the proceeds is being used to refinance other callable bonds, according to Fitch.

Plenty of green

Green issuance still remains at the core of the corporate market and there were two deals in the format on Wednesday.

Dutch transmission system operator Tennet (A- from S&P) raised €1.8bn through a triple-tranche offering comprising €650m December 2027, €500m June 2031 and €650m June 2041 green bonds at spreads of 30bp, 48bp and 67bp over swaps.

Highlighting the investors' preference for shorter duration, the 6.5-year tranche priced without a premium whereas the other two notes paid a small one. Leads put fair values in the low 30s, low 40s and 65bp.

BNP Paribas, Deutsche Bank, HSBC, ING, Rabobank and UniCredit had initially marketed the bonds at 60bp, 70bp and 95bp areas.

European logistics real estate player Tritax EuroBox (BBB- from Fitch) issued its first bond on Wednesday, which it did in green format too. The €500m no-grow five-year green note was more than seven times subscribed, which enabled active bookrunners, Bank of America and BNP Paribas, to cut pricing to 140bp over swaps from IPTs of 180bp-190bp.

The bond also includes a 125bp sub investment-grade coupon step-up.

Hammerson (Baa3/BBB+; Moody's/Fitch), a REIT that invests in UK and European shopping centres, opted for sustainability-linked financing, rather than the use-of-proceeds model.

The company printed a €700m six-year bond via Barclays, BNP Paribas, JP Morgan and MUFG at 210bp over swaps. That was 20bp tighter than where it began marketing.

The coupon on the note is linked to targets to reduce Scope 1, 2 and selected Scope 3 emissions by 60%, and cut Scope 3 tenant-controlled operational emissions by 50% by December 31 2025, from a 2019 baseline.

If Hammerson fails to achieve either target the coupon steps up by 37.5bp. If it fails to achieve both, the step-up is 75bp.

It has also launched a tender offer for its €500m 2% July 2022 and a €500m 1.75% March 2023.

It was not only the euro market where corporates were selling ESG securities. UK housing association Notting Hill Genesis (A-/A) added further weight to the growing supply of sustainable debt from the sector with its debut issue.

Barclays, Lloyds and NatWest Markets brought the £250m no-grow 15-year sustainability bond out at IPTs of 115bp area over Gilts. But with orders at one stage exceeding £620m, pricing was trimmed to 100bp. Final books were £565m.

Notting Hill Genesis manages more than 66,000 homes across London and the South East of England.