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Hybrid Sustainability Bond Makes Nordic Debut

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Stockholm (NordSIP) – Fastighets AB Trianon issued a SEK 400m Perpetual Hybrid Sustainability Bond, the first ever hybrid sustainability bond in the Nordics. Shortly thereafter, Milicom International Cellular, a Telecom company focused on emerging markets, also issued a SEK 2 billion callable senior unsecured green floating rate bond maturing in 2024.

These two transactions open the way for other borrowers to follow them and combine more complex structures with the Green bond label to continue to advance sustainable investment options for Nordic investors.

- Promotion -

The Trianon bond pays a floating rate coupon of 700bps over 3-month Stibor, which is stepped up by 200 bps at the first call date after four years and 100bps every two years thereafter, until a total step-up of 500bps. The bond is deeply subordinated, and classified as equity under IFRS. The bond can be called under certain conditions and coupon payments can be deferred at issuer’s discretion subject to certain restrictions. Nordea was the sole bookrunner. The Milicom bond pays 235 bps over the 3-month Stibor and can be called in May 2022 at a 101.17 premium. The joint book runners on this transaction were Nordea and DNB. The two banks were also sustainability structurers for this transaction.

“From a legal standpoint, Green, Social and Sustainability bonds (Labelled bonds) are no different compared to non-labelled bonds. Credit risk remains the same, albeit be it the Framework does provide additional comfort, not the least in terms of governance and insight into other company-specific matters. Furthermore, labelled bonds offer investors and issuers two additional advantages,” says Anna Reuterskiöld, Associate at Nordea Debt Capital Markets Sustainable Bonds team. “Firstly, investors get transparency, not the least in terms of use of proceeds and impact. Moreover, investors can support a cause which they and their investors deem important. For Green bonds, this constitutes part of the necessary transition into a more environmentally sustainable society. It seems only a natural part of the market’s maturing that the opportunities to invest in socially sustainable projects and assets increase,” she adds.

Trianon invests in properties at strategic and attractive locations in Malmö with a property portfolio mainly consisting of residential, office, retail and community service properties. Residential properties accounted for 61% of the property value as of 31 December 2018. On 28 February 2019, Trianon announced the acquisition of residential properties in Malmö for a value of SEK 900m, the company’s largest acquisition so far.  The hybrid structure of the transaction was an attractive financing route for further expansion given the company’s financial targets. The net proceeds will be used according to the company’s Sustainability Bond Framework, containing both social and environmental projects

After a well-attended pan-Nordic roadshow, on opening day, the books were quickly well covered in less than two hours. Geographically, Swedish investors purchased 78.5% of the bonds, followed by investors from Norway (13%), Denmark (7.5%) and Finland (1%). Sectorally, asset managers bought 67% of the securities, followed by banks’ 32.5% and corporates 0.5%.

“Millicom intends to use the net proceeds of the bond in accordance with the Sustainability Bond Framework which includes both environmental and social investments such as in energy efficiencies, and the expansion of its fixed and mobile networks,” according to the company’s press release. “With this issuance, Millicom leads the way in incorporating sustainability also into its financing strategy. The funds will support Millicom’s efforts to strengthen its positive impact on society and its customer focus by reducing its climate footprint and increasing digital and financial inclusion in the markets where it operates.”

Green bonds are still the dominating form of labelled bonds. According to the ICMA, Green, Social and Sustainability (GSS) bonds issuance in the first quarter of 2019 amounted to US$ 64 billion, up from US$ 43 billion in the first quarter of 2018. Of this amount, 78.13% came from Green bonds, mainly from corporates. Although high-grade issuers have been dominant, there has been some diversity including high yield bonds from Midsummer and Hemfosa. Sustainability bonds were the second most popular label, with US$ 7 billion in issuance up from US$ 5 billion in the same period last year. According to Reuterskiöld, “the new sustainability frameworks include more focused information regarding target population – one of the more challenging parts of social projects.”

Picture from Pixabay

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