Vattenfall on Thursday returned to the market with its second green debt offering – a €500m October 2025 senior unsecured green bond that attracted substantial demand.
“It is a very uncontroversial trade and a no-brainer buy for a lot of investors, particularly ESG-focused accounts,” said Arthur Krebbers, the head of sustainable finance, corporates, at NatWest Markets.
Vattenfall began planning for the long five-year green issue prior to the recent coronavirus-related turmoil and had been biding its time. The current market conditions offered a favourable opportunity, according to Johan Gyllenhoff, Vattenfall’s group treasurer.
“We were a bit opportunistic. … We have financing needs ahead of us in 2021 but Vattenfall is not in a hurry to refinance itself right now. If the market hadn’t given us this window, we could easily have waited another half year,” he said.
The issuer took its first steps in the green sector in 2019 following a 10-year absence from the senior bond market. That €500m June 2026 deal was on Thursday quoted around 43bp over mid-swaps on Tradeweb.
Looking at Vattenfall’s maturity profile, the company did not have any existing bonds in the five-year range. The new green bond fits between the aforementioned June 2026s and an April 2024 issue that was seen at plus 39bp on Tradeweb.
Marketing for the long five-year green paper started at IPTs of mid-swaps plus 75bp area. With books peaking around €4bn within two hours, guidance was refined to 45bp-50bp. The final spread was set at the tight end of that range and the order book dropped to some €3.5bn. For comparison, Vattenfall garnered over €3.9bn of orders for its June 2026 green bond last year.
“We are getting to the stage now where, when pricing new debt issues, the sustainability component is starting to have an impact on achievable pricing outcome. We are seeing more aggressive pricing levels for green bonds than for similar regular bonds,” Krebbers said.
Gyllenhoff said: “We ended up in the lower part of the guidance range, so it is natural to see a few investors leave. But an approximately €3bn book for a €500m deal is still a very good subscription [rate].”
A source close to the deal said the new issue concession was limited and was around 3bp. They also deemed it fair to say there was an element of price sensitivity among some of the investors.
“This bond is not eligible for the ECB’s CSPP programme, so we don’t have that sort of almost insensitive buyer in the order book,” they said.
According to Krebbers, Vattenfall was “another proof point not just of the attractiveness of the credit story, particularly in the current corona[virus] situation, but also the appeal of issuing under a sustainable finance framework.”
The green element had strong a influence on the demand dynamics, according to Gyllenhoff, who said the order book was predominantly composed of very dark green investors.
“What is interesting in the framework of Vattenfall is that they also include research and development. They are financing the HYBRIT project which looks at making fossil-fuel-free steel, which is an important and exciting initiative to support,” said Krebbers.
The green market is supporting more high-technology and R&D projects, and companies in the utilities sector are increasingly getting involved. Vattenfall has a laboratory initiative that is looking to create steel with no carbon impact.
Vattenfall’s green bond framework was set up last April in accordance with ICMA’s 2018 Green Bond Principles and was allocated a “dark green” shade by opinion provider Cicero, its highest rating.
Vattenfall wants to drive the transition towards a fossil-fuel-free society within one generation and is aiming to bring its CO2 emissions to below 21 million tonnes in 2020, the company having emitted about 22 million tonnes in 2018.
“Our growth investments are to a large extent renewable energy, such as wind farms, but we are also investing in new energy solutions such as e-mobility and smarter grids to enable the electrification of society as a whole,” Gyllenhoff said.
Electricity transmission companies are enhancing their presence in the Nordic green debt sector as the region’s shift away from fossil energy picks up momentum.
Earlier this week, Norwegian state-owned Statnett introduced its newly established green bond framework to investors with a view to issuing benchmark green bonds denominated in Norwegian kroner and Swedish kronor, with tenors ranging from three to eight years.
ING was green coordinator on Vattenfall’s trade, and was joint bookrunner alongside Danske Bank, ING, NatWest Markets and Societe Generale.
Source Nasdaq