Chile and Vestas Brave Ukraine Turbulence with SLBs

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    Stockholm (NordSIP) – Despite ongoing turbulence in financial markets caused by the Russian invasion of the Ukraine, green bond markets have remained open. At the beginning of the month, concomittantly with the NIB’s green bond, Chile came to the market with the first sovereign Sustainability-Linked Bond (SLB). This week, in the northern hemisphere, Denmark’s Vestas became the first Danish entity to issue SLBs.

    Unlike green and other sustainability-labelled bonds, SLBs are not tied to specific projects or spending but rather to KPIs and target achievement. If a target is missed, there were will be a financial penalty for the issuer, which will materialise as a step-up coupon.

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    Chile Paves Sovereign Path

    Chile’s sustainability-linked bond was a 20-year maturity and was said to be worth US$2 billion that pays 4.346% return and was priced at 200 basis points (bps) over the equivalent maturity US Treasuries.

    The South American sovereign published its SLB framework in February. Sustainalytics reviewed the framework and described it as Strong/very Strong and Ambitious/Highly Ambitious in its second party opinion.

    The coupon on this transaction is tied to the achievement of SPTs, which will be measured through two KPIs: (i) Absolute Greenhouse Gas Emissions (MtCO2e), and (ii) Share of Non-Conventional Renewable Energy Generation in the National Electric System.

    Vestas Opens Denmark to SLBs

    On Wednesday, March 16th, Vestas issued a dual-tranche €1 billion SLB. The two €500 million bonds have a maturity of seven and 12 years and attracted close to €3.3 billion in bids at issuance. SEB acted as advisor on this transaction.

    The bonds are linked to three KPI’s that are aligned with the company’s 2030 sustainability targets. This involves reducing greenhouse gas emissions in its own operations by 100%, reducing emissions from the supply chain (scope 3) by 45% per MWh generated, and reduce the material efficiency ratio by 90% per MW produced and shipped.

    “It is a true privilege to be part of this transaction for a leading sustainability player such as Vestas, who not only produce climate-positive products, but challenge themselves by linking their financing to their ambitious sustainability targets”, Fredric Nilsson, from SEB’s Debt Credit Markets’ team said ahead of Vestas transaction.

    “Material efficiency and emission reductions in the supply chain (scope 3) are substantial challenges for the wider wind industry – to set yearly targets for these challenges, and include them as a performance commitment towards bond investors is brave and demonstrates leadership,” says Lars Eibeholm, Head of Sustainable Banking Denmark. SEB acted as sole Sustainability Adviser for Vestas’ Sustainability-Linked Bond Framework.

    Vestas Sustainability-Linked Bond Framework was reviewed by DNV, which concluded that Vestas’ KPIs are in accordance with ICMA’s Sustainability-Linked Bond Principles and described its SPTs as “best of class”.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.
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