ESG issues kick-start new week

4 min read
Jihye Hwang

Snam drummed up stronger demand for its four-year green note than its 10-year sustainability-linked bond as ESG issues from utility companies dominated euro high-grade corporate supply on Monday.

The Italian gas infrastructure company (Baa2/BBB+/BBB+) made its debut in the green bond market with the €500m no-grow February 2028s, which gained peak orders exceeding €3.6bn and arguably landed with a zero or even negative new issue premium in the low single digits. The note was part of a €1.5bn dual-tranche offering that included an SLB due February 2034.

Though price tightening and order books were less impressive than the shorter portion, the 10-year bond managed to raise €1bn – double the amount of the green issue – on books of more than €2.7bn.

While the capped size would have been helpful to keep the pricing tight for the shorter tranche, the type of ESG label could have also affected demand.

"We find that the market has become increasingly negative on SLBs over the past couple of years due to concerns about immaterial KPIs and unambitious targets," wrote Barclays' credit analysts in their 2024 ESG bond supply outlook.

"One challenge for investors is the difficulty of finding information on the exact form of each bond, similar to covenant analysis, which has made it harder to analyse bonds and has likely exacerbated concerns."

For issuers that do not have direct ESG investments to make, SLBs can be an easier instrument compared to use-of-proceeds bonds such as green notes. One DCM head said, however, that even some of those borrowers are stepping away from SLBs.

"That's because of the added difficulty in the structure and [that is not helpful] especially in volatile markets as it can delay the overall process, but it's also because regulators are becoming more picky about it," the banker said.

Final terms for Snam's four and 10-year notes were set at mid-swaps plus 70bp and 120bp, respectively, inside 110bp–115bp and 150bp–155bp initial price thoughts, via joint bookrunners Barclays, BNP Paribas, Bank of America, Goldman Sachs, ICBC, IMI-Intesa Sanpaolo, ING, JP Morgan, Mediobanca, Mizuho, SMBC, Societe Generale and UniCredit.

Despite being a gas company, Snam has a robust and verified green and sustainability-linked bond programme, according to CreditSights' analysts. They saw the respective fair value at 65bp–70bp and 100bp–110bp, though some sources put it at 75bp–80bp and 115bp–120bp.

Statnett also printed a €500m no-grow green bond, in its case a 12-year that launched at 68bp, tightening by quite a big margin of 37bp from 105bp area IPTs. A lead put fair value at 70bp.

The Norwegian government-owned electricity grid owner and operator (A2/A+, Moody's/S&P) gained books above €2.3bn when guidance was set at 70bp area, plus or minus 2bp, after peaking at more than €2.9bn. Barclays, BNP Paribas, Danske Bank and NatWest Markets were joint bookrunners.

As of the end of last week, ESG issues accounted for around 36% of the overall investment-grade corporate euro bond sales, according to IFR data. That ratio is roughly in line with the 37% posted during the same period last year but higher than the 28% for all of 2023.

Zero premium

Monday's ESG offerings came alongside Unilever's evenly split €1.2bn dual-trancher comprising eight and 13-year portions. The bonds also attracted almost even demand of over €2.75bn and €3bn, respectively, via bookrunners BNP Paribas, Citigroup, Deutsche Bank and NatWest Markets.

The multiple-times-subscribed order books allowed both tranches to price arguably flat to fair value at 55bp and 75bp, inside respective IPTs of 90bp–95bp and 110bp–115bp. The deal also raised more than the combined €1bn expected when IPTs were announced.

The UK consumer goods giant has a number of bonds maturing this year, the next one being US$500m on March 7, according to CreditSights analysts. The company has also announced a new €1.5bn share buyback programme when it presented its full-year results for 2023 on February 8.

The bonds have expected ratings of A1/A+ (Moody's/S&P). Unilever Finance Netherlands is the issuer, while Unilever and Unilever United States are the guarantors.