Eni SLB blowout shows retail ESG potential

IFR 2469 - 04 Feb 2023 - 10 Feb 2023
5 min read
Julian Lewis

Eni has underscored retail investor appetite for ESG bonds by attracting more than €10bn of demand for a new sustainability-linked issue in just five days. The Italian company, which introduced the oil and gas sector’s first sustainability-linked financing framework and institutional bond in 2021, termed the outcome an “extraordinary success”.

Eni said in a statement that the deal further consolidates the link between its financial and sustainability strategies and “helped to confirm it among the companies promoting innovation in sustainable finance instruments”.

The deal was “an opportunity to send a message” about Eni’s effective transition, chief financial officer Francesco Gattei told IFR. “Eni is not just a typical oil and gas company.”

The company also sought to capture part of Italy’s considerable liquidity due to its high savings rate, he said.

The new issue drew bids from more than 300,000 private investors. The strength of the response set a new record for a single-tranche retail-targeted Italian corporate bond, Eni said.

This allowed it to double the initial issue size to a final €2bn on the first day of the offering on January 16.

Originally due to run until February 3, it was covered on the first day with more than €2bn of orders. Eni then closed subscription on January 20.

All investors who submitted orders received the minimum lot size of €2,000. The deal’s coordinators Intesa Sanpaolo and UniCredit, which also advised the company on structuring, allocated the remainder of the issue – some €1.4bn – in line with the size of orders.

Along with the coordinators, Banca Akros, BNP Paribas, BPER Banca and Credit Agricole formed a placement syndicate that underwrote the original €1bn. In total, 25 banking groups were involved in the deal’s distribution under Italy’s “country system”.

The company attributed the take-up to domestic investors’ “strong appreciation for the soundness of Eni and its commitment to the energy transition”.

"So many Italians have believed in what we are doing, both in terms of progressively moving toward decarbonised industrial processes and products, and in ensuring energy security," said CEO Claudio Descalzi in a statement. He called the deal’s success “surprising”.

Gattei said that Eni, which had not tapped the retail sector since 2011, had anticipated that demand of €6bn–€7bn was achievable in this year’s more positive market environment. But even in the absence of any benchmark, since the last retail corporate issue of comparable size took place in 2015, reaching €10bn exceeded its expectations.

Out of scope

The five-year pays 4.30% annually, the minimum level that Eni committed to pay when it launched the deal.

The final payout in 2028 will step up by 50bp if the company misses either of the structure’s sustainability targets. These refer to its installed renewable energy capacity and its upstream net carbon footprint (Scope 1 and 2).

Although Eni’s framework also features a Scope 3 sustainability performance target, it did not incorporate that into the new issue. Nor did it in the previous institutional SLB.

While ABN AMRO research has shown that issuers incorporating Scope 3 achieve higher greeniums, the company has not yet issued sustainability-linked debt at a sufficiently long maturity for it to be relevant, Gattei said.

A future 10-year issue would be appropriate, he added – though this is not a prospect this year.

Although the deal marked Italy’s first retail-targeted SLB, it follows an earlier retail SLB offer in Thailand in December.

Step-ups are a regular yield enhancement feature in Italy’s retail debt market. The sovereign’s BTP Futura Covid-19 recovery bond, through which it raised over €20bn across four issues, includes multiple step-ups.

Strategy alignment

Eni does not need to return to the retail sector this year. “We have achieved our objectives. This proves that the retail channel is open and positive,” Gattei said.

He expects other borrowers to follow Eni’s lead to mop up the unmet demand and “take the benefits of this market”.

In total, Eni has now issued some €13bn of sustainability-linked debt. This includes its previous institutional SLB and an €8bn sustainability-linked revolving credit facility.

“In the oil and gas sector there is no other major which has such size of [sustainability-linked issuance],” Gattei said.

Moreover, Eni expects to issue all future debt apart from quasi-equity hybrids in sustainability-linked format. This is “to confirm the alignment with the strategy [and] the commitment of the company”, Gattei said.

Unlike its compatriot Enel it is not ready to transform its commercial paper issuance into an ESG product. Rather, it will await guidance from the sustainable CP taskforce created by the International Capital Market Association in late 2021, Gattei said.

Refiled story: Clarifies final issue size