Telefonica celebrates first sustainable hybrid issuance in the telecom sector

18 February 2021

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Telefónica is going strong with decarbonisation and inclusivity

Spanish telecommunications company, Telefónica, which operates in 12 countries and serves over 344 million customers is committed to tackling climate change as well as increasing its positive social impact. The Madrid headquartered firm is on track to reach its decarbonisation objective to reduce its energy consumption per unit of traffic (MWh / PB) by 90% and achieve zero net emissions in its four core markets by 2025.

At the same time, Telefónica wants to contribute to the UN’s Sustainable Development Goal 9: “Build resilient infrastructure, promote inclusive and sustainable industrialization and promote innovation” with an ambitious programme of social projects.

Investors demand soars for sector’s first

To get funding for green and social projects within its sustainable financing framework and to diversify its funding sources, Telefonica turned to NatWest to support the launch of the sector’s first sustainable hybrid bonds, aiming to raise €1 billion. 

Sustainability bonds on the rise 

Sustainability bonds, combining green and social features, grew 81% in 2020 to $68.7 billion, slowly but surely catching up to the longer established green bonds, which saw volumes increase 13% to a new record of $305.3 billion. The green sustainability bond market is also now benefiting of the direct buying programme from the ECB for € senior bonds which will further boost supply.

This sustainable hybrid bonds marked the first issuance under Telefónica’s freshly updated sustainable financing framework, expanding the scope of its social impact projects to include deploying broadband in disconnected areas to help reduce the ‘digital divide’ and improve connectivity,  support for employment and entrepreneurship as well as educational initiatives and skills development programmes. 

Green initiatives within their framework focus on energy efficiency of the network infrastructure, renewable energy and digital solutions for the environment.  One example is the replacement of Telefónica’s copper-based network with fibre, which the company started in 2019 after issuing its first green bond. From 2016 to 2019, thanks to the shutdown of hundreds of thousands of elements and the closure of hundreds of copper plants, Telefónica has saved 346GWh of energy and avoided 93,297 tCO2, equivalent to the carbon captured by more than 1,543,000 trees.

Hybrids offer incentives for issuers and investors

While most of the hybrid bond transactions have been in the European utilities and telecommunications sectors hybrid bonds offer a number of benefits for any company: Firstly, rating agencies typically rank hybrids as half equity, because hybrid bonds combine the characteristics of both debt and equity; this can help companies to alleviate pressures to their credit ratings, versus if they issued a “straight-forward” bond. Secondly, for tax purposes hybrids can be treated as debt, so the interest costs are tax deductible. 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.   

Teamwork secures financing for sustainability projects

Veenay Chheda, Head of Capital Structuring & Solutions, at NatWest said: “This transaction marked our 5th consecutive hybrid mandate from Telefónica, and we’re thrilled that our customer has turned to us again as a key advisor for hybrid bonds.”

Dr Arthur Krebbers, Head of Sustainable Finance, Corporates at NatWest, said: “Sustainability is of paramount importance to us, and we continue to support those on their journeys towards sustainable operations such as Telefónica.”

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