EnBW’s dual green and non-green bonds tranche whets international investors’ appetite

We’re delighted to have supported EnBW with their debut dual tranche of a green and non-green bond, as they look to progress with their climate neutrality plan.

EnBW

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Rethinking energy

With the energy landscape changing, EnBW has changed along with it. In 2013, the German company, which serves over 5.5 million customers, set a new course for the future, determined to progress from a traditional utility to becoming a strong partner for energy and infrastructure as well as become climate-neutral by 2035. Today, after investing massively in the expansion of renewable energies, building wind farms on land and at sea and constructing solar farms, EnBW delivers renewable energies, electricity, gas and telecommunications networks, and electromobility and smart, sustainable energy solutions for its customers.

Together with its network subsidiaries, EnBW is also driving forward the development of smart grids to ensure that the electricity networks can continue to absorb the increasing proportion of de-centrally generated renewable energy in the future. Furthermore, the company offers access to the largest electric charging network in Germany and eight European countries, working hard to further expand its nationwide network of high-performance fast-charging stations to help households with a smooth transition to driving electric vehicles.  

The utility, which ESG ratings agency ISS ESG counts to the top 10% of all Multi Utilities with a ‘B-‘ rating and Sustainalytics counts to the top 32% of all Electric Utilities with a score of 31.0, has already supplemented their reporting to include some of the disclosures required in future by the EU Taxonomy Regulation, even though those disclosures are not yet mandatory. Furthermore, EnBW’s Green Bond Framework includes explicit references to the project categories of the EU Taxonomy as well as to the ‘Do No Significant Harm’ Criteria and’ Minimum Social Safeguards’ requirements of the EU Taxonomy Delegated Acts.

EnBW attracts new non-domestic investors with dual tranche

After supporting EnBW in the role of Structuring Advisor and Global Coordinator for their €500m NC6 hybrid bond in June last year, the utility turned to the NatWest Markets team to support as Joint Bookrunner on the first hybrid bond transaction consisting of green and a non-green tranche marketed simultaneously. The two bonds, with an issue size of €500m each, replace two EnBW hybrids callable in January 2022 (both non-green).

Following a highly engaged credit update with top quality investors, EnBW launched its issue as markets reopened post summer meeting strong demand from the outset, with slightly more orders coming in for the green bond. With the order book reaching over EUR 4bn, EnBW priced the 7-year green bond at 1.375% and went with a coupon of 2.125% for the non-green 11-year tranche.

In contrast to EnBW’s last hybrid issue, orders were regionally diverse and not dominated by German accounts, underlining the strength of the company’s credit and sustainability credentials as well as investors’ appetite for rarer structures.

Net proceeds from the green NC7 tranche will be allocated to finance the project categories Renewable Energy, Energy Efficiency and Clean Transportation as per EnBW’s Green Financing Framework, which the company updated in August this year. ESG rating agency ISS ESG provided a Second Party Opinion (SPO). The proceeds from the non-green bond issue will likewise be directed to further implement the company’s sustainability-oriented strategy but are not earmarked for specific projects.

As in previous transactions, EnBW opted to have the green notes certified by the Climate Bonds Initiative (CBI) known to apply rigorous scientific criteria in their assessment. All EnBW projects financed with proceeds from the green bond issue conform with the EU taxonomy for environmentally sustainable economic activities. EnBW supports the United Nations Sustainable Development Goals (SDGs).

This dual tranche transaction follows on from NatWest working with EnBW on its EUR 500m 10y senior conventional bond in October 2020, which was linked to EnBW’s announcement to become climate neutral, and its EUR 500m Green Hybrid 60NC6 bond in June 2020.

Hybrids offer incentives for issuers and investors

A large share of the hybrid bonds issuances have been in the European utilities and telecommunications sectors as structural changes in those sectors are putting additional pressure on corporate credit quality, which hybrid capital helps to alleviate. How? Rating agencies typically treat hybrids as half equity because hybrid bonds combine the characteristics of both debt and equity, while hybrids tend to be tax efficient. Furthermore, the comparatively higher yields of hybrid bonds appeal to investors, in particular in the current ultra-low interest rate environment, and their hybrid nature means that they attract credit investors and equity investors alike; helping companies to access new investors and grow their investor base. 

Proceeds finance renewable energy, energy efficiency, and clean transportation projects

Katharina Rothboeck, Corporate Financing & Risk Solutions, NatWest, commented: “We’re delighted to have supported our customer with the first hybrid bond transaction consisting of green and non-green tranches marketed simultaneously, marking the 9th hybrid transaction for NatWest this year. The transaction underlines EnBW’s strategic focus on sustainable finance to support its climate neutrality plan.  Sustainability is of paramount importance to NatWest, and we continue to support those on their journeys towards sustainable operations such as EnBW. In this context we’re proud to be currently ranked #1 bookrunner for Green, Sustainable and Social (GSS) European corporate hybrids issued in 2020-2021YTD.”

Dr Arthur Krebbers, Head of Sustainable Finance Corporates, NatWest: “This is only the second EUR hybrid issue of this year with a call date longer than 10 years. Overall, the subordinated sustainable debt market is an important pillar of sustainable finance, and we welcome pioneers such as EnBW helping to grow this asset class as well as raising awareness for this product. Companies like EnBW, which has evolved from a traditional energy company to a business that focuses – to name a few - on renewables energies, electricity and electromobility, do send a clear signal to the market that every company can transition to more sustainability.“

Thomas Kusterer, Chief Financial Officer, EnBW, said: "We are very pleased with the investor support we received for our first green/non-green dual tranche. Around 80% of the proceeds from the green subordinated bond will go into future-oriented projects that we currently have under development, such as the joint offshore wind power project with BP in the UK, or under construction, such as the Gottesgabe and Alttrebbin large-scale photovoltaic projects with 150MW each in Brandenburg. The remaining approximately 20% will be used to refinance existing green projects.”

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