India’s JSW Steel netted US$1bn from a dual-tranche transaction that included a sustainability-linked bond, navigating treacherous conditions in Asia’s high-yield market.
The trade highlighted two themes of 2021 – the rise of Indian issuance and a surge of SLBs.
The 144A/Reg S trade, which was priced in September, was split between a US$500m long five-year note, priced to yield 3.95%, and a US$500m long 10-year SLB, printed to yield 5.05%. Pricing tightened from initial guidance of the 4.375% and 5.5% area on the back of a strong book.
The combined order book reached more than US$4.7bn from 245 accounts at reoffer, after peaking around US$5.6bn.
The SLB portion of the trade, which was rated Ba2/BB– (Moody’s/Fitch) in line with the issuer, was a notable first for the country and industry. JSW Steel is the flagship company of JSW Group, and a key steel producer in India. It used its standing in capital markets to advance sustainable finance efforts.
The transaction was the first SLB to be sold by the steel sector globally, as well as the first from an Indian high-yield company. It also carried the longest tenor for a US dollar SLB offering from an Asian corporate issuer.
Asia saw its first US dollar SLBs in 2021, and they became a roaring success for issuers nimble enough to launch them. For companies like JSW Steel that need to transform polluting businesses, SLBs offer a way to raise funds for environmental efforts with transparency and accountability.
The company will pay a 37.5bp coupon step-up if it fails to meet its performance target to reduce by 23% its CO2 emissions intensity by 2030, from a 2020 baseline. While the performance of the bonds is tied to the issuer’s carbon-related efforts, proceeds of the trade can be used more generally for capital expenditure and debt prepayment or repayment.
As with any maiden outing, JSW Steel’s trade took negotiation, with the syndicate team working to ensure the chosen KPIs were appropriately ambitious and reflective of the efforts JSW Steel needs to make. The deal was also the issuer’s first 144A outing, adding demand from US investors to the mix.
About 36% of the SLBs were allocated to Asian investors, with 35% going to EMEA and 29% to the US. Fund and asset managers took the bulk of the bonds at 93%, while private banks took 5% and banks 2%.
Credit Suisse was sole structuring agent for the sustainability-linked notes, as well as joint lead manager and bookrunner with Deutsche Bank, Standard Chartered, Axis Bank, BNP Paribas, Mizuho, MUFG and State Bank of India.
DNV provided a second-party opinion on JSW Steel’s SLB framework.
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